SHLDQ - Sears Holdings Corp

[Mephistopheles]

http://www.bloomberg.com/news/2014-02-25/lampert-seeks-real-estate-sizzle-by-shearing-sears-name.html?cmpid=yhoo

 

Lampert Seeks Real Estate Sizzle by Shearing Sears Name

[ni-co]

Thanks for this link, Mephistopheles!

 

"The holy grail is to be able to repurpose the real estate in an orderly fashion, and in order to do that you need to be somewhat viable,” Lachance said. “It’s just not clear what’s the strategic vision in regards to its real estate."

 

I agree with the first part of this quote. However, does the second part of it refer to the first part, like the author seems to imply? What exactly would be the benefit for Seritage to state its "strategic vision" and how would this make repurposing its real estate any more "viable"? This last paragraph of this article, probably meant to leave the reader worrying about Sears' "obvious" lack of strategic vision, doesn't make any sense to me at all.

[bmichaud]

"Only 23 percent of the company’s Sears stores are located in so-called “A” malls where demand is highest, he said in a phone interview."

 

No sh$t Sherlock!! It's this type of spin that creates so much confusion about the RE value. "SHLD real estate is garbage!! It's going down in flames!! Only 20% of the RE is worth anything!!" No duh - the 80/20 rule indirectly confirmed by media morons.

 

Funny - the core 68MM SF is 27% of the total 254MM SF...

[ni-co]

"Only 23 percent of the company’s Sears stores are located in so-called “A” malls where demand is highest, he said in a phone interview."

 

No sh$t Sherlock!! It's this type of spin that creates so much confusion about the RE value. "SHLD real estate is garbage!! It's going down in flames!! Only 20% of the RE is worth anything!!" No duh - the 80/20 rule indirectly confirmed by media morons.

 

Funny - the core 68MM SF is 27% of the total 254MM SF...

 

I'm also tired of reading poorly researched lopsided articles. However, there is a huge upside to it, too. It's interesting to think about the media/share price feedback loop. EMH suggests that all the media attention a company like Sears gets should improve the pricing by the market. In reality, quite the opposite is true. Hyped companies become even more pricey and beaten down companies become even cheaper. Sometimes even great companies become incredibly cheap thanks to this feedback loop (thinking of AAPL at 8 times earnings).

 

The advantage of analyzing companies by oneself and buying and selling them in a disciplined way has only been getting stronger with increased media attention towards the stock market.

[bmichaud]

"Only 23 percent of the company’s Sears stores are located in so-called “A” malls where demand is highest, he said in a phone interview."

 

No sh$t Sherlock!! It's this type of spin that creates so much confusion about the RE value. "SHLD real estate is garbage!! It's going down in flames!! Only 20% of the RE is worth anything!!" No duh - the 80/20 rule indirectly confirmed by media morons.

 

Funny - the core 68MM SF is 27% of the total 254MM SF...

 

I'm also tired of reading poorly researched lopsided articles. However, there is a huge upside to it, too. It's interesting to think about the media/share price feedback loop. EMH suggests that all the media attention a company like Sears gets should improve the pricing by the market. In reality, quite the opposite is true. Hyped companies become even more pricey and beaten down companies become even cheaper. Sometimes even great companies become incredibly cheap thanks to this feedback loop (thinking of AAPL at 8 times earnings).

 

The advantage of analyzing companies by oneself and buying and selling them in a disciplined way has only been getting stronger with increased media attention towards the stock market.

 

Agree 100%. Precisely why I wholeheartedly dismiss the notion that you need to find "under-followed" small caps in order to outperform. David Tepper generating 40% gross returns with billions of dollars proves that is not the case.

[bmichaud]

Good to see SHLD back almost squarely in line with JCP % for %  8)

[Luke 532]

Case In Point on Sears and Media Coverage

http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

[muscleman]

I have been reading Buffet's annual letters starting from 1965. He started buying common stocks of other companies as soon as he took control over. I wonder why Eddie hasn't bought a single share of other companies since he took control, and he acquired GEICO in 1967.

 

With that said, SHLD has a lot of RE value since Eddie took control, but Berkshire's textile assets are pretty much worthless after 10 years.

 

In terms of profitability, Berkshire made a lot of money since 1965, but SHLD kept losing.

[sampr01]

Mark

 

That article is for subs only. Please can you give us a brief summary atleast one or two sentences. thanks

[jeffmori7]

Mark

 

That article is for subs only. Please can you give us a brief summary atleast one or two sentences. thanks

 

Click on the link, it's public.  I wouldn't post it if it wasn't available to the public.

 

No, it doesn't work.

[Luke 532]

Mark

 

That article is for subs only. Please can you give us a brief summary atleast one or two sentences. thanks

 

Click on the link, it's public.  I wouldn't post it if it wasn't available to the public.

 

No, it doesn't work.

 

Thought it was public because it doesn't say "subs" like it usually does and I'm always logged-in, so I was unaware it was for subs only.  Can't provide a summary, that wouldn't be cool.  Nothing jaw-dropping, just giving some examples of how the media twists stuff, as usual.

[BTShine]

I have been reading Buffet's annual letters starting from 1965. He started buying common stocks of other companies as soon as he took control over. I wonder why Eddie hasn't bought a single share of other companies since he took control, and he acquired GEICO in 1967.

 

With that said, SHLD has a lot of RE value since Eddie took control, but Berkshire's textile assets are pretty much worthless after 10 years.

 

In terms of profitability, Berkshire made a lot of money since 1965, but SHLD kept losing.

 

Good point. 

 

When things were going well at SHLD, Eddie was investing in undisclosed equity securities.  Once things started getting worse at SHLD this activity stopped.

 

My guess is what Eddie thinks any excess cash is better spent either within the company (SYW Points, etc -- clearly a use of cash that could be debated) or spent repurchasing stock, buying back debt or paying down the pension liabilities.  All of this is because he believes the assets of SHLD are worth more than the current market cap.  Once he satisfies his desires to reinvest within SHLD, pay down pension liabilities, buyback debt then I expect him to repurchase shares until the shares are fairly valued.  Then it would be rational for him to invest cash in other stocks. 

 

 

 

 

[heth247]

Case In Point on Sears and Media Coverage

http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

 

Thanks, but it requires subscription from me, Luke.

[Luke 532]

Case In Point on Sears and Media Coverage

http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

 

Thanks, but it requires subscription from me, Luke.

 

see my response about 3-4 posts ago.

[Luke 532]

Guys, you should be able to access the ValuePlays link now.  Todd just informed me that he has opened it up to the general public: http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

[heth247]

Guys, you should be able to access the ValuePlays link now.  Todd just informed me that he has opened it up to the general public: http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

 

Yes, it works now.

[ni-co]

Guys, you should be able to access the ValuePlays link now.  Todd just informed me that he has opened it up to the general public: http://www.valueplays.net/2014/02/25/case-point-sears-media-coverage/

 

Thanks, Luke! Yes, so true. Unbalanced and utterly lazy coverage.

 

There will be times when Bloomberg/Business Week and other media will turn their bias in their Lampert coverage by 180 degrees (once more). I would be very surprised, however, if they did this before the stock price recovers. In their conscious or subconscious view, the stock price at this very moment is the one and only measure whether a CEO is a genius or a complete moron. At the moment, Sears is down and so Lampert must be a moron, right? I bet you that as soon as SHLD recovers, Lampert will be seen as a "genius" once again, which - naturally - will come as a total surprise to "everybody"…

[Evolveus]

Lampert reduces ESL's AutoNation Stake from 15.7m shares down to 9.9m shares

 

http://www.sec.gov/Archives/edgar/data/350698/000119312514066138/d678048dsc13da.htm

[muscleman]

Does anyone know when is the next time when Eddie has to hand out the SHLD shares to his clients for redemptions? I think eventually he has to hand out all 20 m shares in his fund.

[heth247]

I have been reading Buffet's annual letters starting from 1965. He started buying common stocks of other companies as soon as he took control over. I wonder why Eddie hasn't bought a single share of other companies since he took control, and he acquired GEICO in 1967.

 

With that said, SHLD has a lot of RE value since Eddie took control, but Berkshire's textile assets are pretty much worthless after 10 years.

 

In terms of profitability, Berkshire made a lot of money since 1965, but SHLD kept losing.

 

I have read the book "Outsiders" and Eddie's annual letters to shareholders together.  Eddie's letters remind me that he is doing exactly what the "Outsider CEOs" were doing: Cutting cost, focus on profitability + ROA (instead of growing in size and SSS), focus on long-term wealth-creation(instead of short-term GAAP earning), taking a unconventional but  approach that is not welcomed/understood by Wall street, decentralize, share-buyback, thinking in independence, rationality and logic, and with patience, etc....

 

I don't think Eddie is going to just repeat what Buffett did (maybe there just can be one Buffett). He is more likely to be another "Outsider CEO". Honestly, neither matters to me as long as he manages to generate a compounded return of 20% over the next 20 years for me.

 

The question is, we don't know how many other CEOs have tried the same thing but still failed, Eddie could just be another one of them, especially given the extremely tough problem he picked. But are you willing to take a bet on him and enjoy the enormous upside ride with him if he succeeded, and with a comfort of downside protection by the asset value at this price level?

 

Btw, it is unfair to say that "SHLD kept loosing". As Eddie indicated in his letters, adjusted EBITDA is the best metric to measure. They have earned pretty stable adjusted EBITDA and generated lots of cash before 2011. Then the dramatic decline started...

 

 

[peridotcapital]

 

I don't think Eddie is going to just repeat what Buffett did (maybe there just can be one Buffett). He is more likely to be another "Outsider CEO". Honestly, neither matters to me as long as he manages to generate a compounded return of 20% over the next 20 years for me.

 

Btw, it is unfair to say that "SHLD kept loosing". As Eddie indicated in his letters, adjusted EBITDA is the best metric to measure. They have earned pretty stable adjusted EBITDA and generated lots of cash before 2011. Then the dramatic decline started...

 

Using adjusted EBITDA as a core metric proves Eddie is not going to mimic Warren Buffett. Buffett hates managers who use adjusted EBITDA. I would suggest looking at free cash flow instead, especially when the two are wildly different, which is quite often unfortunately. 

[gg]

Random thought - people were comparing Eddie Bauer to Lands End a few pages earlier in this thread. I wonder if Mens Wearhouse could be a potential buyer of LE, if Joseph A Banks ends up closing on the Eddie Bauer deal, given that MW and JOSB both seem bent on making acquisitions. I don't know enough about Eddie Bauer and Lands End to know how similar they are, but only thought of it because people on this board mentioned that they are similar brands

[adesigar]

 

I don't think Eddie is going to just repeat what Buffett did (maybe there just can be one Buffett). He is more likely to be another "Outsider CEO". Honestly, neither matters to me as long as he manages to generate a compounded return of 20% over the next 20 years for me.

 

Btw, it is unfair to say that "SHLD kept loosing". As Eddie indicated in his letters, adjusted EBITDA is the best metric to measure. They have earned pretty stable adjusted EBITDA and generated lots of cash before 2011. Then the dramatic decline started...

 

Using adjusted EBITDA as a core metric proves Eddie is not going to mimic Warren Buffett. Buffett hates managers who use adjusted EBITDA. I would suggest looking at free cash flow instead, especially when the two are wildly different, which is quite often unfortunately.

 

You mean like Buffett suggests we ignore the effect of the long term derivatives contracts on Earnings(aka adjusted earnings)?

I agree with Buffett that we should ignore the effects of those Derivatives contracts on Berkshire earnings just like I agree with Lampert that his Adjusted EBITDA is a better measure for SHLD.

[ni-co]

 

I don't think Eddie is going to just repeat what Buffett did (maybe there just can be one Buffett). He is more likely to be another "Outsider CEO". Honestly, neither matters to me as long as he manages to generate a compounded return of 20% over the next 20 years for me.

 

Btw, it is unfair to say that "SHLD kept loosing". As Eddie indicated in his letters, adjusted EBITDA is the best metric to measure. They have earned pretty stable adjusted EBITDA and generated lots of cash before 2011. Then the dramatic decline started...

 

Using adjusted EBITDA as a core metric proves Eddie is not going to mimic Warren Buffett. Buffett hates managers who use adjusted EBITDA. I would suggest looking at free cash flow instead, especially when the two are wildly different, which is quite often unfortunately.

 

You mean like Buffett suggests we ignore the effect of the long term derivatives contracts on Earnings(aka adjusted earnings)?

I agree with Buffett that we should ignore the effects of those Derivatives contracts on Berkshire earnings just like I agree with Lampert that his Adjusted EBITDA is a better measure for SHLD.

 

There is nothing wrong with EBITDA. Buffett's problem with it is that you don't account for capex (and at the same time exclude depreciation/amortization as a proxy for capex). You cannot use it on its own to value companies, therefore, but you can use it to track operating performance or compare companies with similar capex requirements. That's all.

[Liberty]

heth247, that's an interesting thought.

 

I think it might be a lot harder for Eddie to do, though. What supercharged the returns of the Outsiders CEOs was a combination of good businesses that threw off lots of cash and great capital allocators who knew how to deploy that cash at very high returns (mostly a mix of acquisitions and buybacks).

 

Eddie might be a great capital allocator, but his business definitely doesn't throw off lots of cash for him to deploy. He has a pile of assets and liabilities that are probably worth more than the market cap, but there's a step missing for him to be able to use the Outsiders model and for this not to be just a melting ice cube liquidation play.

 

My view on SHLD is that if it really is going to turn into a great compounder that will do well for the next 10-20 years, then I don't mind waiting until year 3 or 5 (or whatever) to get in, after the new model has been demonstrated. People who got in before that, during the past decade, hoping for an investment vehicle, have so far been disappointed. Maybe there will be a huge spike in the early years when it starts, and I don't mind missing it because there's also always the chance that ESL will keep only doing his Ayn Rand retail experiment to the bitter end and results won't be as good as people expect.

 

But if he stabilizes things, converts assets into cash and redeploys it into good businesses that provide lots of FCF for him to play with, then I'll certainly consider it. If not, there are other good Outsiders-style CEOs out there...