SHLDQ - Sears Holdings Corp

[peridotcapital]

It's anecdotal, but here is a post about my trip this weekend to the Sears store in Lynnwood, WA (one of the 9 "box split" candidates listed on the Seritage web site). Nothing earth shattering for veterans of this thread, but figured I'd pass along a link anyway...

 

http://www.peridotcapitalist.com/2014/02/checking-sears-property-slated-possible-box-split.html

[bmichaud]

That's what I figured. Perhaps these SpinCo properties are worth something above $8, and the remainder is next to nothing, bringing the average to $8.

[CorpRaider]

I would be interested to see what HBI or VF Corp could do with that LE brand.

[merkhet]

Sears owns half of a city block in Oakland, right in the middle of everything, with an entrance to Bart in the basement.  The building is at least four stories (above ground). 

 

 

I couldn't find county property information so have pieced it together through other webpages. 

 

 

I post this because it I was near it Friday night and noticed how huge and in the middle of downtown it was. 

 

 

The City and developers want to redevelop it - I bet it's a matter of price and Lampert's just waiting to get an excellent one.

 

 

http://www.loopnet.com/Listing/15363526/1945-Broadway-Oakland-CA/

 

 

http://www.contracostatimes.com/news/ci_24769359/negotiations-advance-sale-sears-building-downtown-oakland

 

 

EDIT: It looks like the redevelopment has been an issue about price and terms - see attached.

 

I've attached a copy of the tax assessed value of the property -- which, I'm guessing, undervalues the property significantly.

Oakland_01.pdf

[JAllen]

2010 ebitda margin was 12%. 2012 was 6%. There was good discussion back when the spin was announced about how SYW expense is being allocated to LE, which is driving down margins. 2010 is probably a decent proxy for what "core" lands end can earn, IMO.

 

 

I ask because I looked for this specifically in the gross margin section in the registration statement, but they attribute the decline in gross margin rate to higher commodity costs and increased markdowns.  This could still be from SYW, I suppose, but they don't say that.  Excerpt from the registration statement attached

[krazeenyc]

2010 ebitda margin was 12%. 2012 was 6%. There was good discussion back when the spin was announced about how SYW expense is being allocated to LE, which is driving down margins. 2010 is probably a decent proxy for what "core" lands end can earn, IMO.

 

ask because I looked for this specifically in the gross margin section in the registration statement, but they attribute the decline in gross margin rate to higher commodity costs and increased markdowns.  This could still be from SYW, I suppose, but they don't say that.  Excerpt from the registration statement attached

 

 

 

there was much discussion when this came up that syw economics in fact was a zero sum game, and that no economic value will accrue to LE post spin. if it does it comes at the expense of shld. this was a theory. like so many here, bullishly biased. there is certainly not a consensus that the margin drop at LE was due to SYW and that once it is fee from the shackles of SHLD, those margins will "magically" be restored.

 

The issue is NOT SYW. The issue with Lands End is it never fit with Sears in the first place and they have not been trying to grow/improve the brand. Cap Ex total in the last 3 years... $50M. That is the problem with Lands End under Sears.

[Kraven]

It's anecdotal, but here is a post about my trip this weekend to the Sears store in Lynnwood, WA (one of the 9 "box split" candidates listed on the Seritage web site). Nothing earth shattering for veterans of this thread, but figured I'd pass along a link anyway...

 

http://www.peridotcapitalist.com/2014/02/checking-sears-property-slated-possible-box-split.html

 

Good post.  I'm a bit surprised though that you don't seem to be aware how hot fake mustaches are these days.  You also neglected to mention the high end rubber band blasters next to them.  With all the anti firearm rhetoric, rubber band guns have become the ultimate for security needs.

[JSArbitrage]

The issue is NOT SYW. The issue with Lands End is it never fit with Sears in the first place and they have not been trying to grow/improve the brand. Cap Ex total in the last 3 years... $50M. That is the problem with Lands End under Sears.

 

This is a difficult argument to make.  ESL is supposedly a master capital allocator and if he felt he'd get an adequate return investing in LE, he would have done so.

 

From everything I have read, low-end brands are getting hammered.  And LE is a low-end brand.  JCrew is a mid-tier brand and their standard polo shirt is ~50% more expensive than LE.

 

I am still unsure about ESL's spin-offs.  So far, this has not been an exercise is taking the pearl out of the clamshell.  They seem to be more of getting the meaningless assets out while the market is bubbly to focus on more important things.  I think both previous spin-offs are below their initial trading price (and one went BK.)

 

I think Lampert just wants the $500M divy, will take whatever sliver of value LE equity will trade at initially and then will let LE float on their own with a decent amount of debt. 

 

He's giving up a couple hundred million dollars per year in EBITDA for a negative EBITDA business.  We'll see.

 

 

[Luke 532]

38 store closures so far this year.  Many thanks to krazeenyc for starting/maintaining this thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-store-closures/

 

Using the quote below as a proxy ($3.3M/store), those 38 stores account for roughly $125M in net gain so far in 2014 (or 3.5% of current market cap).

"The $1 billion net proceeds from 300 closed stores since 2006 - most of which occurred in 2012 - implies around $3.3 million net gain for each closed store."

http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy?source=email_rt_article_title

 

And using JCP's recent store closings as a proxy for annual cost savings ($1.97M/store), those 38 SHLD stores would be annual cost savings of $75M (or 2% of current market cap annually).

"...closing 33 'underperforming' stores in an effort to rein in expenses.

...moves to generate $65 million in annual cost savings." http://money.cnn.com/2014/01/15/news/companies/jcpenney-jobs/

 

I know these are rough estimates but it gives us a decent idea of how these closures are impacting SHLD.

[peridotcapital]

38 store closures so far this year.  Many thanks to krazeenyc for starting/maintaining this thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-store-closures/

 

Using the quote below as a proxy ($3.3M/store), those 38 stores account for roughly $125M in net gain so far in 2014.

"The $1 billion net proceeds from 300 closed stores since 2006 - most of which occurred in 2012 - implies around $3.3 million net gain for each closed store."

http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy?source=email_rt_article_title

 

And using JCP's recent store closings as a proxy for annual cost savings ($1.97M/store), those 38 SHLD stores would be annual cost savings of $75M.

"...closing 33 'underperforming' stores in an effort to rein in expenses.

...moves to generate $65 million in annual cost savings." http://money.cnn.com/2014/01/15/news/companies/jcpenney-jobs/

 

I know these are rough estimates but it gives us a decent idea of how these closures are impacting SHLD.

 

Any rough idea how many stores were closed in 2013, 2012, and 2011? Curious how much of an "acceleration" is happening.

[krazeenyc]

Jan 2011: 2245 - 1307 Kmarts, 894 Sears, 30 SAC, 14 LE.

Jan 2012: 2223 - 1305 Kmarts, 867 Sears , 37 SAC, 14 LE. 

Jan 2013: 2069 - 1221 Kmarts, 798 Sears, 36 SAC, 14 LE.

Sep 2013: 2018.

 

I assume they've been "accelerating" since 2012. But the precise number of store closing depends I think on the individual leases -- how much Sears gets paid to leave, how much they have to pay to leave, whether they can leave for $0.00. In one case Sears actually announced a store closing, the mall apparently gave them some kind of incentive to stay and Sears ended up reversing course 1 week later.

 

Re: Lands End. Keep in mind -- if Land's End Ebitda is $125M SHLD actually only loses about $95M of Ebitda since they will now get $30M per year of rent from Lands End.  (at least for 5 years when Lands End leaves).

[BTShine]

 

One interesting note is that after the closing of 100+ stores in early 2012, Sears saw a large improvement in their Adjusted EBITDA.  In the Q2 earnings release that year (link below), they saw an improvement of $95 million that single Quarter --- $250 million in Adjusted EBITDA for the first 2 Quarters of the year.  This is about $1 Million improvement in EBITDA per store each Quarter. 

 

Clearly attributing all of the EBITDA improvement to store closings is an oversimplification, but it's a data point to consider when discussing SHLD store closures. 

 

http://www.searsholdings.com/pubrel/pressOne.jsp?id=s16310_item131584

[heth247]

Maybe he wants the money sooner than later. He has been monetizing assets a lot recently. 500M from Sears Canada and 500M from LE. He has been calling for another 500M from the assurance business too.

The end game is quickly approaching, and it is still unclear to me what he will do with these cash. If he had raised cash earlier in 2010 or 2011, he would have made a killing using the cash to buy other stocks, but I haven't seen him using the cash to invest in anything else except SYW.

If he starts to use the cash to invest in other stocks, I would be very interested in increasing my position

 

It is also interesting to me why Eddie is hoarding 1.8b of cash now. Is it because he's going to do a big settlement with the pension, once for all?

 

But I highly doubt the reason is that he will all of sudden start to use it to invest in other stocks. He did not do it in the past 4 years. Why start to do it now at the market top? There is really not many bargains out there ... (one of the reasons I am forced to look at SHLD.  :D )

 

 

 

 

[ERICOPOLY]

Maybe he wants the money sooner than later. He has been monetizing assets a lot recently. 500M from Sears Canada and 500M from LE. He has been calling for another 500M from the assurance business too.

The end game is quickly approaching, and it is still unclear to me what he will do with these cash. If he had raised cash earlier in 2010 or 2011, he would have made a killing using the cash to buy other stocks, but I haven't seen him using the cash to invest in anything else except SYW.

If he starts to use the cash to invest in other stocks, I would be very interested in increasing my position

 

It is also interesting to me why Eddie is hoarding 1.8b of cash now. Is it because he's going to do a big settlement with the pension, once for all?

 

But I highly doubt the reason is that he will all of sudden start to use it to invest in other stocks. He did not do it in the past 4 years. Why start to do it now at the market top? There is really not many bargains out there ... (one of the reasons I am forced to look at SHLD.  :D )

 

Well, let's say he buys a new business.  Hopefully it's something that is rapidly expanding, so that he solves another of his problems at the same time (finding a tenant for his real estate).

 

Here is an example of an expanding business that needs new locations:

http://www.traderjoes.com/stores/store-calendar.asp

 

They have 5 stores opening this month alone!

 

 

[heth247]

 

Well, let's say he buys a new business.  Hopefully it's something that is rapidly expanding, so that he solves another of his problems at the same time (finding a tenant for his real estate).

 

Here is an example of an expanding business that needs new locations:

http://www.traderjoes.com/stores/store-calendar.asp

 

They have 5 stores opening this month alone!

 

I do like trader joes. But their store floor print is really too small to fill Sears's gigantic voids....

 

[Luke 532]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

[alertmeipp]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

[stahleyp]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

He increased his position slightly according to the last 13f by 365,200 shares.

[ERICOPOLY]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

The net assets aren't generating the return they deserve, so you have to discount them.  Perhaps he is doing that and arrives at a number that isn't sufficient to justify an increase in his position size.

 

 

[krazeenyc]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

You don't think he's buying enough? Here are the number of Sears shares he's held in his 13Fs....

 

11/2013  20,758,173

8/2013    20,392,973

5/2013  19,508,773

2/2013  18,146,573

11/2012 16,934,080

8/2012  16,829,880

5/2012  16,813,480

2/2012 16,108,492

 

I would be shocked if his 13G/A that he files on 2/14 doesn't show that he bought a bunch more of SHLD.  I am fascinated by SHLD, but definitely do not have the same level of conviction as Bruce.

[Luke 532]

What's stopping him from buying more then?

 

He increased his position slightly according to the last 13f by 365,200 shares.

 

Correct... from 20,393,000 to 20,758,000 in Q3 (just under 2% increase).

 

Nothing is stopping him from adding and I'd be surprised if he doesn't add more... we'll find out in a couple weeks.  He usually files between the 15th and the 17th of February, May, August, and November.

[ERICOPOLY]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

You don't think he's buying enough? Here are the number of Sears shares he's held in his 13Fs....

 

11/2013  20,758,173

8/2013    20,392,973

5/2013  19,508,773

2/2013  18,146,573

11/2012 16,934,080

8/2012  16,829,880

5/2012  16,813,480

2/2012 16,108,492

 

I would be shocked if his 13G/A that he files on 2/14 doesn't show that he bought a bunch more of SHLD.  I am fascinated by SHLD, but definitely do not have the same level of conviction as Bruce.

 

The Fairholme Fund grew in asset size over the last two years.

 

He holds 25% more shares today versus two years ago.

 

Has his Sears position as % of net assets in the fund been getting larger or smaller over these past two years? 

 

In other words, let's say his fund grew 100x in size and over that time he bought 25% more SHLD.  That wouldn't be too impressive.  So I know Fairholme didn't grow 100x in asset size, but did it grow more than 25% over the past two years?

 

It wouldn't be all that bullish if it were getting smaller as a % of the fund.  It depends on whether the fund is growing faster than his SHLD position. 

 

 

 

[alertmeipp]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

You don't think he's buying enough? Here are the number of Sears shares he's held in his 13Fs....

 

11/2013  20,758,173

8/2013    20,392,973

5/2013  19,508,773

2/2013  18,146,573

11/2012 16,934,080

8/2012  16,829,880

5/2012  16,813,480

2/2012 16,108,492

 

I would be shocked if his 13G/A that he files on 2/14 doesn't show that he bought a bunch more of SHLD.  I am fascinated by SHLD, but definitely do not have the same level of conviction as Bruce.

 

No, he should be buying way more if he believes this is trading less than 1/3 of NAV. AND he should be more involved in pushing for a plan to realize the NAV.

[krazeenyc]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

You don't think he's buying enough? Here are the number of Sears shares he's held in his 13Fs....

 

11/2013  20,758,173

8/2013    20,392,973

5/2013  19,508,773

2/2013  18,146,573

11/2012 16,934,080

8/2012  16,829,880

5/2012  16,813,480

2/2012 16,108,492

 

I would be shocked if his 13G/A that he files on 2/14 doesn't show that he bought a bunch more of SHLD.  I am fascinated by SHLD, but definitely do not have the same level of conviction as Bruce.

 

The Fairholme Fund grew in asset size over the last two years.

 

He holds 25% more shares today versus two years ago.

 

Has his Sears position as % of net assets in the fund been getting larger or smaller over these past two years? 

 

In other words, let's say his fund grew 100x in size and over that time he bought 25% more SHLD.  That wouldn't be too impressive.  So I know Fairholme didn't grow 100x in asset size, but did it grow more than 25% over the past two years?

 

It wouldn't be all that bullish if it were getting smaller as a % of the fund.  It depends on whether the fund is growing faster than his SHLD position.

 

He's actually pared his BAC position slightly. BAC was up 20%. SHLD down about 40%.  If SHLD was up 20%, and BAC down 40% SHLD would be his 2nd largest position. SHLD is the only position he's been consistently adding to. (Of course part of this is that AIG and BAC have been steadily growing  in value).

[ERICOPOLY]

Fairholme letter out...

http://www.fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX%20Letter.pdf#pagemode=bookmarks

 

"Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of Sears’ net assets exceeds $150 per share. If our research is accurate, we expect Sears’ market price of $38 to increase to this value over time."

 

What's stopping him from buying more then?

 

You don't think he's buying enough? Here are the number of Sears shares he's held in his 13Fs....

 

11/2013  20,758,173

8/2013    20,392,973

5/2013  19,508,773

2/2013  18,146,573

11/2012 16,934,080

8/2012  16,829,880

5/2012  16,813,480

2/2012 16,108,492

 

I would be shocked if his 13G/A that he files on 2/14 doesn't show that he bought a bunch more of SHLD.  I am fascinated by SHLD, but definitely do not have the same level of conviction as Bruce.

 

The Fairholme Fund grew in asset size over the last two years.

 

He holds 25% more shares today versus two years ago.

 

Has his Sears position as % of net assets in the fund been getting larger or smaller over these past two years? 

 

In other words, let's say his fund grew 100x in size and over that time he bought 25% more SHLD.  That wouldn't be too impressive.  So I know Fairholme didn't grow 100x in asset size, but did it grow more than 25% over the past two years?

 

It wouldn't be all that bullish if it were getting smaller as a % of the fund.  It depends on whether the fund is growing faster than his SHLD position.

 

He's actually pared his BAC position slightly. BAC was up 20%. SHLD down about 40%.  If SHLD was up 20%, and BAC down 40% SHLD would be his 2nd largest position. SHLD is the only position he's been consistently adding to. (Of course part of this is that AIG and BAC have been steadily growing  in value).

 

So according to Morningstar, FAIRX returned 35.81% in 2012 and 35.54% in 2013.  That doesn't include new money going into the fund (I assume there were net additions by investors).

 

So SHLD must be shrinking in importance within the fund if he only boosted the share count by 25%.