SHLDQ - Sears Holdings Corp

[ni-co]

So after the Land's End spin, what does he do with his shares? Does he have any reason/desire to hang on to them?

 

Yes, because in his mind LE is undervalued by the market. That's why he does a spin-off in the first place and not an outright sale. It's not that there are no buyers out there – I think most PE shops would love to buy LE. Yet, there is no buyer that wants to pay a good price for LE, because at the moment "retail is dead".

 

I think people don't appreciate how difficult it is to build a business like Lands' End with such a loyal customer base that shops over the internet. And the LE concept works worldwide. LE's strong brand practically guarantees you profitability in times where other clothing retailers have a really hard time competing with Zara, H&M & Co.

 

I'd be completely surprised if Lampert sold his shares shortly after the spin-off.

[ni-co]

I felt that Letter/Presentation/Conference Call was meh. Very little new information.

 

The few things I got were

1. SYW Points difference between 2012 and 2013 - $282 Million. That's the difference so actual cost is probably much higher. Even if the change was 50% increase over 2012 that means total cost of points is $846 Million (My estimate was $800 Million). 2 promotional programs. Once they see the points working they plan to go from fixed promotional cost using advertising to a variable cost using points.

 

2. Lands end separation by end of April

 

3. Nice reduction in pension obligations (which we kind of knew already). If they keep up current pace of contributions and interest rate increases about 1% in the next 2 years, Pension obligations will be gone.

 

4. Been reducing lease obligations significantly for last 6 years, Lease obligations down by 3 Billion in 6 years. The list of store closures reported this year will mean more reductions in these obligations.

 

5. They've expensed hundreds of millions in SYW points in Q4 which will be redeemed in next 3 Quarters resulting in increased sales if points are used or if unused will get cancelled out increasing earnings for Q1-Q3.

 

6. No shares repurchased.  :(

 

 

Agree, apart from your first sentence, but that might be me only. To me, Letter/Presentation/Conference Call where kind of an Aha experience. I think I understand now what he tries to do and, more importantly, see that it could actually work. When he has cost down where he likes it to be (space sold off, inventory down, pension liabilities worked off) he has far more options to maneuver.

 

Particularly, letter and presentation signaled to me that the core retail business is not that far from being profitable. On the surface, Sears piles up losses every quarter, but at the same time the balance sheet keeps getting stronger and the retail business more capable of competing.

 

To me, this is important not because I speculate on a turnaround but because this has a great influence on the asset values (phantasies of having a really profitable retailer come on top of that). To all of you demanding he should stop pouring cash into the retail business, look at the sum-of-the-parts valuation of SHLD. How much of it depends on keeping the retail business alive? You can't liquidate billions of dollars of RE without really having to sell it at fire sale prices. If he gets three times the money for the RE and it takes him 10 years to sell it, it's still a good deal. At the moment, the brands are also much more valuable with a living retailer.

 

SHLD is worth three times its market cap if Lampert gets the retailer break even. Every penny above break even makes it even more valuable. Think about how much money SHLD can make with 40 bn in revenue if he is even mildly successful and how that would affect a 4.6 bn market cap. This is a tremendous upside.

 

Momentarily, I haven't found a better risk/reward investment (though there surely are).

[fareastwarriors]

Sears Game of Chutes and Ladders

 

http://online.wsj.com/news/articles/SB10001424052702304071004579409520721852520?mod=WSJ_HOS_LeadStory&mg=reno64-wsj

[DCG]

I don't really understand the rise in the stock price yesterday. They continue to report 1 dismal quarter after another.

[ni-co]

I don't really understand the rise in the stock price yesterday. They continue to report 1 dismal quarter after another.

 

That's why the news were good:

 

2. Lands end separation by end of April

 

3. Nice reduction in pension obligations (which we kind of knew already). If they keep up current pace of contributions and interest rate increases about 1% in the next 2 years, Pension obligations will be gone.

 

4. Been reducing lease obligations significantly for last 6 years, Lease obligations down by 3 Billion in 6 years. The list of store closures reported this year will mean more reductions in these obligations.

 

5. They've expensed hundreds of millions in SYW points in Q4 which will be redeemed in next 3 Quarters resulting in increased sales if points are used or if unused will get cancelled out increasing earnings for Q1-Q3.

 

and

 

The business needs less inventory each year as he downsizes the retail operations.

 

I think people have the perception that he is burning $1 billion in cash ever year keeping the retailing businesses alive. 

 

Is it possible that a large portion of these losses is selling excess inventory (that most people value at zero) for less than the carrying value?

 

I don't believe that the retailer will burn any cash going forward.  Perhaps I am in the minority, but I believe the losses are overblown.  Certainly this has not been a profitable activity for the last few years, but some portion of the losses have actually been turning excess inventory into cash (which is good!), and Eddie is making it look worse than it is (immediately expensing SYW points).

 

If you look at the losses of this year, and subtract GAAP losses on selling excess inventory at a discount, then discount the actual expense of giving out SYW points, then take away the lease expense and operating losses from the 200 worst stores (which he is rapidly closing), how much money is he really "throwing at" the retail operations?

 

And finally, there were also quite good numbers at LE.

 

As to why the share price moves like a yoyo? I don't know. Why did the share price collapse when ESL sold shares? Maybe it's because of the small free float,  maybe it's because people don't think before they buy and sell their shares, maybe it's because they confuse price and value or have no idea how to value a company, maybe it's because they think SHLD is the next JCP?

 

[Luke 532]

I don't really understand the rise in the stock price yesterday. They continue to report 1 dismal quarter after another.

 

Chapter 8 of The Intelligent Investor can answer the vast majority of questions like this: "why did stock X do Y today?"

[adesigar]

I don't really understand the rise in the stock price yesterday. They continue to report 1 dismal quarter after another.

 

My guess is there were new shorts who thought results will be worse than expected. News was ok not as bad as they hoped so some covered their short positions.

[ni-co]

I don't really understand the rise in the stock price yesterday. They continue to report 1 dismal quarter after another.

 

Chapter 8 of The Intelligent Investor can answer the vast majority of questions like this: "why did stock X do Y today?"

 

+1

 

I also like Joel Greenblatt's explanation:

 

"So why do share prices move around so much every year when it seems clear that the values of the underlying businesses do not? Well, here’s how I explain it to my students: Who knows and who cares?

 

Maybe people go nuts a lot. Maybe it’s hard to predict future earnings. Maybe it’s hard to decide what a fair rate of return on your purchase price is. Maybe people get a little depressed sometimes and don’t want to pay a lot for stuff. Maybe people get excited sometimes and are willing to pay a lot. So maybe people simply justify high prices by making high estimates for future earnings when they are happy and justify low prices by making low estimates when they are sad.

 

But like I said, maybe people just go nuts a lot (still my favorite). The truth is that I don’t really have to know why people are willing to buy and sell shares of most companies at wildly different prices over very short periods of time. I just have to know that they do!"

 

[DCG]

I get all that..mostly just trying to understand why investors are enthusiastic about what seems like another awful quarter to me.

[Luke 532]

I get all that..mostly just trying to understand why investors are enthusiastic about what seems like another awful quarter to me.

 

The vast majority of trades and short-term price action reflect the opinions of traders as opposed to long-term investors.  Traders vote almost daily whereas investors vote far less frequently.  Personally, I don't really care what traders think of any particular stock, especially SHLD. 

[gg]

I get all that..mostly just trying to understand why investors are enthusiastic about what seems like another awful quarter to me.

 

The vast majority of trades and short-term price action reflect the opinions of traders as opposed to long-term investors.  Traders vote almost daily whereas investors vote far less frequently.  Personally, I don't really care what traders think of any particular stock, especially SHLD.

 

This may sound ridiculous, but to confirm Luke's point, you should join twitter, and type in $SHLD or other stocks you follow. (Not sure if this link will work if you don't have an account - https://twitter.com/search?q=%24shld&src=typd&f=realtime)

 

The amount of moronic postings about charts/breakout/resistance/etc is likely representative for what drives much of the day-to-day movements of stocks.

 

(

[DCG]

This may sound ridiculous, but to confirm Luke's point, you should join twitter, and type in $SHLD or other stocks you follow. (Not sure if this link will work if you don't have an account - https://twitter.com/search?q=%24shld&src=typd&f=realtime)

 

The amount of moronic postings about charts/breakout/resistance/etc is likely representative for what drives much of the day-to-day movements of stocks.

 

 

 

 

Totally. The postings of traders on the internet is insane and drives me nuts every time I see it, so I do my best to avoid it. I get that beating expectations is a key driver of short-term stock movements...I always just think it's funny when I see people get excited when a company that's losing a boatload of money loses a bit bit less than people though.

[Luke 532]

Secret Service supposedly was investigating data breach, but SHLD told CNBC that none of the data they have indicates a breach. 

 

And now Sears comments on it: http://blog.searsholdings.com/shc-updates/statement-from-sears-holdings/

 

Edit: For the record, I do not watch CNBC... just saw one of their talking heads post about it on Twitter.  One can gain more insight on investing by reading Green Eggs and Ham than they can watching CNBC.

[oddballstocks]

Secret Service supposedly was investigating data breach, but SHLD told CNBC that none of the data they have indicates a breach. 

 

And now Sears comments on it: http://blog.searsholdings.com/shc-updates/statement-from-sears-holdings/

 

Edit: For the record, I do not watch CNBC... just saw one of their talking heads post about it on Twitter.  One can gain more insight on investing by reading Green Eggs and Ham than they can watching CNBC.

 

Oh the heresy, the heresy!  WEB is on CNBC...how dare you profane any network that gives him airtime....

 

 

 

I agree with you  ;D

[Luke 532]

Form 4's: Just over 3,000,000 shares of AutoNation sold in past week.

 

2/18-2/20: 1.19M shares http://www.sec.gov/Archives/edgar/data/350698/000118143114008203/xslF345X03/rrd403038.xml

 

2/21-2/25: 1.87M shares http://www.sec.gov/Archives/edgar/data/350698/000118143114009277/xslF345X03/rrd403624.xml

 

Lampert sold more AutoNation.  Latest Form 4 released 2/28 (trades 2/26 and 2/28)... 696,757 shares sold.  That's 3.76M shares since mid-February.

 

http://www.sec.gov/Archives/edgar/data/350698/000118143114010010/xslF345X03/rrd404086.xml

[muscleman]

I am surprised that SHLD thread is no longer on the 1st page!  :)

Last weekend I drove by Sears in Alderwood mall. I have been there before a few times and normally there were barely any cars. But this time, the parking lot is almost completely full. It is even harder to find parking lots in front of other stores like Norstrom or Macy's, so maybe it is merely that those customers came to park in front of Sears?

Anyway, I did not have time to go inside the store, but it is pretty surprising. When is the last time that you saw the parking lots in front of Sears almost completely full?

[oddballstocks]

I am surprised that SHLD thread is no longer on the 1st page!  :)

Last weekend I drove by Sears in Alderwood mall. I have been there before a few times and normally there were barely any cars. But this time, the parking lot is almost completely full. It is even harder to find parking lots in front of other stores like Norstrom or Macy's, so maybe it is merely that those customers came to park in front of Sears?

Anyway, I did not have time to go inside the store, but it is pretty surprising. When is the last time that you saw the parking lots in front of Sears almost completely full?

 

Almost never!  Was at the Kmart near us, apparently they don't expect any business because the snow removal people used their parking lot as the place to pile snow.  I'd say 70% of their parking lot was filled with giant piles of snow from the rest of the shopping center.  The sad thing is there were still plenty of spots left to park.

 

I hope SHLD kills the Kmart near us, it's an eyesore.  The place is under maintained and always empty.  The rest of the shopping center is packed.  We visit once a year to buy oversized clothes for a relative, Kmart is the only place that carries them.

[tng]

I am surprised that SHLD thread is no longer on the 1st page!  :)

Last weekend I drove by Sears in Alderwood mall. I have been there before a few times and normally there were barely any cars. But this time, the parking lot is almost completely full. It is even harder to find parking lots in front of other stores like Norstrom or Macy's, so maybe it is merely that those customers came to park in front of Sears?

Anyway, I did not have time to go inside the store, but it is pretty surprising. When is the last time that you saw the parking lots in front of Sears almost completely full?

 

Haha, I always go park at the Sears side of the mall when the rest of the parking lot is full. Then I would walk around Sears and go into another entrance because nobody goes into Sears. I'll have to go in one day and see what is in there.

[ni-co]

I’m not sure about the efficacy of this type of business strategy, and like many value investors, I’m much more interested in the assets. But one thing I think too many people are doing is closing their minds to this story, and following the consensus view that Sears is dead.

 

http://basehitinvesting.com/eddie-lampert-2014-shareholder-letter/

[heth247]

This SA article talks about how "Omnichannel retail" (a.k.a integrated retail) can be the saver for JCP...

http://seekingalpha.com/article/2064213-j-c-penney-and-the-earl-of-omnichannel?isDirectRoadblock=false&source=email_rt_article_readmore&app=1&uprof=45

 

Enter Mike Rogers, The Earl of Omnichannel Retail

 

What many analysts and commentators may have missed from the earnings call was Ullman's official pronouncement that Mike Rogers, the former CIO of Saks Fifth Avenue, had been anointed "Senior Vice President of Omnichannel Strategy & Execution" (I'd love to see that business card). Said Ullman,

 

"I believe the future of retail is omnichannel, and we are committed to leading our sector in omnichannel functionality…. As a pioneer in online retail, we believe J.C. Penney can and will help lead the way in the development of true omnichannel experience."

 

It is my contention that within Ullman's statement lays one of the main catalysts for J. C. Penney's continued turnaround and stock price advance - Omnichannel (a.k.a Omni-Channel) retailing. Mike Rogers is an established practitioner of Omnichannel, having brought the approach to Saks Fifth Avenue, using technology partly sourced from Oracle (ORCL). Regardless of the technology he will be (or already is) implementing at J. C. Penney, I believe Rogers' influence will be felt very soon, to the chagrin of the bears.

 

It's all about the stores…. oh yeah, and inventory

 

Omnichannel retailing is the "Amazon killer" because of its focus on getting customers into stores. Amazon (AMZN) may even have to take notice, as there's been a lot of talk about the online retailer needing to establish a brick and mortar presence, for example by snapping up RadioShack (RSH), another turnaround play I'm long.

 

What would Amazon want with a brick and mortar presence? If a loyal, existing, in-store customer spends $5 for every $1 they do online, and Mike Rogers made this happen at Saks, imagine what he will do for J. C. Penney!

 

I believe J. C. Penney will significantly increase the average purchase of loyal and new customers through targeted offers and in-store promotions, and increased sales will follow. What kind of sales increases are we talking about? Research shows "Omnichannel customers" spend 35-50% more than single channel shoppers. (#3 above - check)

 

What about higher margins you ask? Omnichannel techniques and technology can prioritize and amplify the value of higher margin, private label brands, and reduce the need for aggressive discounting. (#1 above - check)

 

Mike Rogers' Omnichannel strategy will very likely focus on reducing inventory expense by buying less stock, (#2 above - check) while at the same time being able to sell more goods across channels, thus reducing the need for markdowns (higher margin - #1 above - again - check).

 

Sounds all familiar? ;)

[Luke 532]

Sears seeks tenants for its Twin Cities auto centers

http://www.bizjournals.com/twincities/news/2014/03/04/sears-seeks-new-tenants-auto-centers.html

[jeffmori7]

A quick check on http://www.shcrealty.com/ shows that there are 3077 operating store opportunities and 120 closed store opportunities.

 

It appears that while Sears are closing a lot of store, they have difficulties selling, leasing, subleasing, transforming them at the same pace. So except for leases not renewed, the story is not always over once the closure or transformation is announced.

 

we should try to keep track of those numbers over time.

 

More than one month later..they are at 3075 operating store opportunities and 117 closed store opportunities...so it is going down..but really slowly.

[wisdom]

http://seekingalpha.com/article/2063913-sears-3-investment-cases?source=yahoo

 

interesting read

[txlaw]

Rating Action: Moody's assigns B1 Corporate Family Rating to Lands' End

 

https://www.moodys.com/research/Moodys-assigns-B1-Corporate-Family-Rating-to-Lands-End--PR_294086?WT.mc_id=NLTITLE_YYYYMMDD_PR_294086

[BTShine]

Interesting to see that Sears had positive comparable SSS in February, while a couple retailers (Gap and American Apparel) had big drops in SSS in February. 

 

I know it's only one month, but still interesting.