SHLDQ - Sears Holdings Corp

[txlaw]

I understand the rhetoric, value adding process, potential value, and agree with it.  However, at the end of the day the numbers are what they are.  Even adding back tax allowances and potential sales of real estate down the road at higher prices, the stock is not at an extremely cheap price for investment.  Of course, if good news comes out over the next 6-18 months the stock may double but surely not an investment with a great deal of margin-of-safety on the balance sheet.

 

There appears currently to be cheaper opportunities out there with BAC and RFP to name a couple.

 

Cheers

JEast

 

I disagree.  The (hidden) balance sheet absolutely presents an MOS.  This is no JCP.

[JEast]

Of course the (hidden) balance sheet items absolutely presents an extra MOS.  But recognize I am a cheap SOB that likes things really cheap.  Adding the potential hidden items of Sears back only gets one down to about 1.1X of BV, and that is way too expensive for me.  I like stuff at 0.5X of BV or at 0.9X BV if you have a capable capital allocator working with float.

 

Cheers

JEast

[BTShine]

An article was published today on Sears Real Estate Divestitures, etc.

 

http://www.chicagorealestatedaily.com/article/20130425/CRED03/130429852/sears-to-unload-eight-more-stores-here#ixzz2RVUC6GKY

 

 

[cubsfan]

Nice article on the real estate liquidation.

They mention the K-Mart in Willowbrook, Ill.

I live about 3 miles away. It's a large property, very old store.

Great location - I'm sure they will make plenty of money on it.

My wife hopes Costco will buy it!

[muscleman]

An article was published today on Sears Real Estate Divestitures, etc.

 

http://www.chicagorealestatedaily.com/article/20130425/CRED03/130429852/sears-to-unload-eight-more-stores-here#ixzz2RVUC6GKY

 

Yeah. They still have 2000 more stores to go.

Well, I think Eddie will keep the profitable ones. How many unprofitable ones are there? 1000? That is still a long way to go. Probably 3 more years if he decides to aggressively liquidate?

[texual]

It all comes back to appliance sales and average age of appliances in American homes. Either people will replace them (win for sears) or need service (again, win for sears). But right now appliance sales are weak and housing is still in a slow trend back to normal. I think in those three years if he can sever the worst stores and keep even the underwater, but performing locations, Sears would do very well with appliances leading their way out. But I don't watch appliance data much, however I do notice a lot more commercials for GE, Kenmore and Whirlpool appliances on tv, even during primetime.

 

It says to me that theres a market to be had, and we should own a piece of the largest contributor to the market.

[cubsfan]

RE: the appliances - that is such a good way to look at it. My wife and I have held off any new appliances for years, but in the last 6 months

we replaced 2 refrigerators, 1 dishwasher and 1 stove top unit. We looked into getting them repaired from Kenmore - too expensive -

so we bought all new Kenmore stuff anyway. People rag on Sears, but we really have always liked Kenmore.

 

Just like the auto story, the appliances replacements are coming, with or without a housing recovery.

[texual]

Please keep us up to date on meeting information, minutes, Anything!

[Matson125]

Hi All,

 

I took the opportunity and attended the annual meeting.  I had met a few people from the board, so if I have missed anything please feel free to make any additions or corrections as you see fit.

 

Presentation

-Online sales increased 25% in Q4 and 17% for the full year

-Half of the online business is from integrated retail ex: Shop from home and pick up in store, ship to store

-65 million products online, 10 million products added in the last quarter

-Last year shipping to the end user took an average of 3 days, currently they have improved to 2 days or less, and in some cases 1 day shipping.

-Throughout the presentation he never used the word “customers” he would call them “our members”.

-Sears received an award for being #1 in mobile speed by Internet Retailer

http://www.internetretailer.com/mobile/2013/04/17/sears-achieves-lightning-fast-speed-after-redesigning-its?list_type=tag&tag=m-commerce&index=5

-Shopyourway.com is able to personalize rewards ex: during Hurricane Sandy, Sears was able to upload points to affected homeowners by searching their postal code and information the originally provide Sears.  Members used those points to buy items they need to recover.

-All about feedback.  Eddie talked about rewarding members for telling Sears when a transaction or a purchase was a nice experience.

-“Members get more” Eddie talked about pricing specifically for members.  He also talked about two different sale prices displayed in store and on line for members and non-members which will entice non-members to become members.

-This is a direct quote from Eddie” Profitability is well below the assets we have committed to the business”

 

Q+A

 

-Eddie was asked about being regulated to participate in sustainability projects (I didn’t get the question in full) Eddie had said he was not a fan of an overregulated society.

 

-Is Housing currently a headwind or tailwind?  Eddie has briefly talked about what he sees in his hometown of Miami and that housing is improving.  With respect to Sears he mentioned that Sears will benefit when there’s “home turnover” not just when a new home is purchased.  He said we can expect as the economy recovers “core products” (I assume he means KCD products) at Sears will drive profits. 

 

-He had also mentioned that throughout 08-09 the better of the Sears stores suffered the most as they sold the most appliances and were the hardest hit.  Sears got hit worse that other stores as the big purchases are credit dependent, and credit was frozen at the time.

 

-Eddie reads WEB’s letter every year

-Eddie said that he was saddled with the view of others that this is a real estate play

-Eddie was asked about spinoffs in the future ex: Lands’ End “If we can drive a sufficient level of profit having the assets together is better that having them separated”.

-Book recommendation: Top Dog: The Science of Winning and Losing by Po Bronson and Ashley Merryman

 

-Eddie was asked about the development in St. Paul http://www.startribune.com/local/stpaul/185692252.html?refer=y

He initially directed the question to an exec who handles the real estate, however the exec was not in attendance at the meeting.  Eddie said he’s not familiar with this development in any great detail.

 

-A question was asked about pursuing one brand instead of having multiple brands.  Eddie had answered the “How about a shop your way store”.

 

-All and all I felt the meeting was informative.  Being a numbers guy I would have liked to see some more figures that solidifies Eddie’s points and arguments.  This is the first shareholders meeting I attended where the CEO didn’t take any informal questions after the Q+A.  I was ready to ask questions that I think would spark a discussion, but Eddie left the room immediately after the meeting was adjourned.

 

Michael

 

 

[jeffmori7]

Thanks for the writeup!

 

So, if I understand, Eddie said that Sears is not just a real estate play? Is it the first time he mentions that?

 

Their online business seems to be doing great, watchout Amazon :)

[cubsfan]

Eddie said he never intended SHLD to be a real estate play.

The value of the real estate would be dramatically higher if they

succeeded as retailer in the location. He said this was always a misconception.

[Philip Morris IV]

I'd venture that most of us are fine with SHLD not being a real estate play, but we also can't ignore the massive real estate portfolio here.  Has Eddie or management articulated what SHC Realty's grander plans are?  By that I mean:  safe to say they do some leasing and selling, but how will they allocate the ensuing cash flow?

[muscleman]

I'd venture that most of us are fine with SHLD not being a real estate play, but we also can't ignore the massive real estate portfolio here.  Has Eddie or management articulated what SHC Realty's grander plans are?  By that I mean:  safe to say they do some leasing and selling, but how will they allocate the ensuing cash flow?

 

The real estate will be more valuable if the stores are performing. Then they can sublease a portion of it for a good price.

Eddie seems to be a retail specialist. I think he will use the cash flow to grow Sears retail, or acquire other retailers. But this will be quite different from BRK. I don't foresee Eddie running an insurance company.

[compoundinglife]

I'd venture that most of us are fine with SHLD not being a real estate play, but we also can't ignore the massive real estate portfolio here.  Has Eddie or management articulated what SHC Realty's grander plans are?  By that I mean:  safe to say they do some leasing and selling, but how will they allocate the ensuing cash flow?

 

The real estate will be more valuable if the stores are performing. Then they can sublease a portion of it for a good price.

Eddie seems to be a retail specialist. I think he will use the cash flow to grow Sears retail, or acquire other retailers. But this will be quite different from BRK. I don't foresee Eddie running an insurance company.

 

Well he already has Sears Re. AFAIK they don't insure anything but SHLD. Guessing you referring to taking on external liabilities, but he is running one.

[BTShine]

I was at the meeting, too.  Here are some of my thoughts based on what's already been posted to our board...

 

At one point Mr. Lampert was asked "how should we think about valuing this company...?"  I don't think Lampert gave the answer everyone wanted to hear, but he said that "there is no doubt the real estate is valuable.  But, the company is much more valuable if it can be profitable.  So, he said there are two different ways to think of SHLD's value.  #1 is purely based upon real estate value" (I took this to mean his 'worst case scenario') "and #2 is based upon profitability."  This still leaves us with the problem of estimating the value of SHLD's real estate.

 

Hearing Lampert say the real estate has value basically solidified the idea that the company has the real estate as a baseline value.  The money losing stores can continue to be closed, which unburdens the profitable stores.  And, it harvests value from the inventory and real estate of the poorly performing stores. 

 

When Mr. Jaffe of Force Capital asked if SHLD is getting for it's real estate... specifically, "are we at the 'full dollar' with the offers we are receiving" (Mr. Jaffe asked how today's offers compare to the low '50 cent on the dollar' offers SHLD was getting for its real estate a few years back),  Mr. Lampert responded that "we are not getting offers at the full dollar, but we are getting closer."   

 

 

[Philip Morris IV]

The real estate will be more valuable if the stores are performing. Then they can sublease a portion of it for a good price.

Eddie seems to be a retail specialist. I think he will use the cash flow to grow Sears retail, or acquire other retailers. But this will be quite different from BRK. I don't foresee Eddie running an insurance company.

 

Sorry - I realize I wasn't clear on that question.  I was referring to the stores he plans to close.

 

Say Sears closes 50-100 stores per year over the next 5-10 years, and SHC Realty then sells/leases that real estate.  How will he allocate the ensuing cash flows?  How will he handle the growth of SHC Realty relative to retail.

 

I guess what I'm getting at is - if he's closing stores, it's a fair assumption he won't put that much cash flow into "growing" Sears retail (i.e. opening more stores lol).  So then where will the cash go?

 

BTShine - great info!

[Guest wellmont]

The real estate will be more valuable if the stores are performing. Then they can sublease a portion of it for a good price.

Eddie seems to be a retail specialist. I think he will use the cash flow to grow Sears retail, or acquire other retailers. But this will be quite different from BRK. I don't foresee Eddie running an insurance company.

 

Sorry - I realize I wasn't clear on that question.  I was referring to the stores he plans to close.

 

Say Sears closes 50-100 stores per year over the next 5-10 years, and SHC Realty then sells/leases that real estate.  How will he allocate the ensuing cash flows?  How will he handle the growth of SHC Realty relative to retail.

 

I guess what I'm getting at is - if he's closing stores, it's a fair assumption he won't put that much cash flow into "growing" Sears retail (i.e. opening more stores lol).  So then where will the cash go?

 

BTShine - great info!

 

he will reduce debt.

[muscleman]

The real estate will be more valuable if the stores are performing. Then they can sublease a portion of it for a good price.

Eddie seems to be a retail specialist. I think he will use the cash flow to grow Sears retail, or acquire other retailers. But this will be quite different from BRK. I don't foresee Eddie running an insurance company.

 

Sorry - I realize I wasn't clear on that question.  I was referring to the stores he plans to close.

 

Say Sears closes 50-100 stores per year over the next 5-10 years, and SHC Realty then sells/leases that real estate.  How will he allocate the ensuing cash flows?  How will he handle the growth of SHC Realty relative to retail.

 

I guess what I'm getting at is - if he's closing stores, it's a fair assumption he won't put that much cash flow into "growing" Sears retail (i.e. opening more stores lol).  So then where will the cash go?

 

BTShine - great info!

 

Why would you worry about this? He is a great fund manager and you are worrying if he has no place to deploy his cash?

[BargainValueHunter]

Was Berkowitz @ the meeting?

 

He is a very large owner after all.

[BTShine]

Berkowitz was not at the meeting as far as I could see. 

 

As for "what will he do with the cash", I think that would be a nice problem to see him try to solve.  He would either reinvest the money into SHLD's operations (handing out more ShopYourWay Points to new members), or buy back stock, or pay down debt, etc. 

 

 

[muscleman]

I went to this Sears store today and bought two Land's End Canvas coat.

http://www.yelp.com/biz/sears-redmond

 

The label says it is 70% off the already reduced price, but when I took them to the counter, the computer showed the reduced price, not the final price (which should be 70% off the reduced price). The associate didn't even know there is the 70% off promotion. I felt unhappy but then the other associate came and said she knew the discount, so she had to manually apply the discount for me.

Then I said I wanted to talk to the manager, but the associate lied that the manager is very busy and wouldn't have time to meet me. I insisted and then she pretended to call the manager. I waited for 10 minutes but the manager didn't come.

 

Then I walked around the store and found the manager myself. I complained to him and he said he didn't receive any calls from the associates. Then he said it is surprising that the computer didn't show the final price and that some of the associates didn't know the promotion. Then he asked me if there is anything else I wanted to buy. I pointed to a jewelry box. He said he could check it out for me using his ipod. Then his ipod didn't show the correct price and he had to bring me to the counter to check out.

 

I think overall this store that I visited is poorly managed. I think there is a lot of room for improvement, and I hope someone could forward my story to Eddie.

In addition, I don't understand why there is sears.com and at the same time shopyourwayrewards.com. Couldn't they make just one site?

[txlaw]

http://www.reuters.com/article/2013/05/01/sears-meeting-idUSL2N0DH36T20130501

[compoundinglife]

http://www.dailyfinance.com/on/sears-offers-lease-to-own-program/

 

Partnering with Why Not Lease It (http://www.whynotleaseit.com/) to offer lease to own.

[muscleman]

http://www.dailyfinance.com/on/sears-offers-lease-to-own-program/

 

Partnering with Why Not Lease It (http://www.whynotleaseit.com/) to offer lease to own.

 

This looks very cool. Appliances are very expensive, and this lease to own option could help a lot. :)

[BTShine]

Agreed - Appliances are very expensive.

 

At the meeting Mr. Lampert commented on how financing had not really opened up for a lot of consumers buying appliances, etc.  Hearing that, and now seeing this news, is very encouraging to me. 

 

Also, in the meeting presentation, (see here: http://searsholdings.com/invest/docs/SHC_2013_Shareholder_Presentation.pdf) I think it's on page 27, they show that sales have increased by 8% PER MEMBER...I think this is big, big, big news, but I haven't heard anyone talking about it, and I haven't been able to figure out what that information really means for the big picture of SHLD.  Obviously it's encouraging...but, I can't quantify exactly how that will affect sales. 

 

Does anyone on this board have any thoughts about how the 8% growth in sales per SYWR member will affect things?  Also, if membership is growing, and sales per member are growing, how is it possible for sales to stay flat?  (granted, we haven't seen the Q1 sales figures, so maybe they aren't flat anymore :) )

 

Any insight is appreciated.