SHLDQ - Sears Holdings Corp

[peridotcapital]

RBS Partners AutoNation shares 12.4M vs 15.8M last quarter: http://www.sec.gov/Archives/edgar/data/860585/000095012314006305/xslForm13F_X01/form13fInfoTable.xml

 

And he slashed his Gap holdings by more than half in one quarter. AUM from his limited partners is under $2B. I wanted to ask him at the annual meeting if ESL would be around in 5 years but figured he wouldn't have answered.

[Luke 532]

RBS Partners AutoNation shares 12.4M vs 15.8M last quarter: http://www.sec.gov/Archives/edgar/data/860585/000095012314006305/xslForm13F_X01/form13fInfoTable.xml

 

And he slashed his Gap holdings by more than half in one quarter. AUM from his limited partners is under $2B. I wanted to ask him at the annual meeting if ESL would be around in 5 years but figured he wouldn't have answered.

 

It was wise not to ask as that would have been a wasted question (he wouldn't have answered).

[wisdom]

Chad thanks for the write up. I would point out that it is worth looking at what SHLD is doing with the Hispanic market.

 

While you might believe it is only individuals over 50 or 60 shopping at SHLD - Hispanics will the largest group in US going forward.

 

Cheers.

[heth247]

Still, if KCD is only 20% of sales and falling just as fast as the rest of the business, there appear to be cracks there too. That said, if we start to see hardlines sales flatten out and inch higher, while softlines and food/drug decline, that would be a great signal for the strategy you outlined. The KCD sales weakness in recent years is really concerning to me, more so than the overall sales declines. If the bread and butter aren't working, to me that signals lack of relevancy, loyalty, and too much competition.

 

I agree that it would be ideal to see KCD sales stabilize. I guess the decline must be due to both competition, the closing of stores, and the transformation. 

 

I also agree with you that the upside will be decided by the retail transformation, not the real estate. The RE is more for the protection of downside. Whether the retail will be a slam dunk or not is still unclear (at least for outside shareholders) at this point. At the end, when Eddie says that he believe they can build a better trap and has seen some signs that they are on the right track, you have to believe him to be a hardcore investor of SHLD.

 

 

 

[BTShine]

Sears is holding another conference call (pre-recorded) when they release earnings.  Will be Thursday morning (5/22).

 

http://searsholdings.mediaroom.com/index.php?s=16310&item=137288&utm_source=dlvr.it&utm_medium=twitter

[Luke 532]

Comps did go up in February, despite the bad weather. That's a good sign.

 

Unless March and April were bad months we should see positive SSS comps for Q1 (end Jan-end Apr), correct?

 

http://searsholdings.com/invest/docs/2013_Q4_Call_transcript.pdf

“So we did see an improvement in our comp sales through the month of January. While still early in the quarter, we are seeing positive domestic comparable store sales for the month of February for Sears’ full-line and Kmart formats combined.”

 

Note: date on PDF is February 27, so 1 day of February sales not accounted for.

[BTShine]

Here's a gold mine for all that missed the annual meeting.  Eddie has posted video of his presentation at the annual shareholder meeting.

 

http://bit.ly/1tg9y7R

or

http://blog.searsholdings.com/eddie-lampert/video-highlights-of-our-2014-annual-meeting/

[Luke 532]

Here's a gold mine for all that missed the annual meeting.  Eddie has posted video of his presentation at the annual shareholder meeting.

 

http://bit.ly/1tg9y7R

or

http://blog.searsholdings.com/eddie-lampert/video-highlights-of-our-2014-annual-meeting/

 

Thanks for the heads up.  Although the blog post is dated May 16th I think these were added within the past 24 hours.

[OracleofCarolina]

Yes, it is nice to see the videos of the annual meeting. I guess Eddie wanted shareholders to feel better since earnings, i mean losses will be reported on Thursday. I hope the losses do not cause any one to ship their pants  ;D

[kevin4u2]

Interesting videos. I thought SHLD was a real estate play. After listening to the videos it is clear that Eddie wants to be the next Jeff Bezos.

 

 

Here's a gold mine for all that missed the annual meeting.  Eddie has posted video of his presentation at the annual shareholder meeting.

 

http://bit.ly/1tg9y7R

or

http://blog.searsholdings.com/eddie-lampert/video-highlights-of-our-2014-annual-meeting/

[Luke 532]

Interesting videos. I thought SHLD was a real estate play. After listening to the videos it is clear that Eddie wants to be the next Jeff Bezos.

 

It's kind of both (real estate play and retail transformation play).  He's obviously gaining confidence in the retail transformation, which might not be such a bad thing since he has access to information that others don't.  Yet he also realizes the value of the real estate per the quote below...

"We can't deny that we're, one, a real estate company, and two, a customer company," Lampert said.

http://www.memphisdailynews.com/news/2012/may/3/sears-execs-say-retailer-financially-strong//print

 

I'm in this for the real estate, but I'm also in this for Lampert's brain.  If he thinks the risk/reward on the transformation is so darn attractive I'm willing to give him time to let it play out.

[Eye4Valu]

Bruce Berkowitz said that if he were in Eddie's shoes, he would make many of the same decisions that Eddie has made. In watching those videos, I was kind of struck by a similar thought. I think Eddie is being a true American. He is attempting to keep people employed in the pursuit of achieving a successful retail transformation. That is a Herculean task if there ever was one. If he fails, the bull thesis goes that the approximate liquidation value of the inventory likely settles the majority of Sears' liabilities. If you're not getting the real estate for free, then it's not too far off either. More property than Simon. That's crazy to me. Simon owns a lot of property. Time will tell. If Sears shareholders get left with nothing at the end of the day, then something is seriously wrong. Then again, how do you run off with all that real estate? The fact that Sears spooks most people makes me even more bullish. I'll buy on Thursday if the results are poor as expected. I'll be greedy when others are fearful.

[txlaw]

Bruce Berkowitz said that if he were in Eddie's shoes, he would make many of the same decisions that Eddie has made. In watching those videos, I was kind of struck by a similar thought. I think Eddie is being a true American. He is attempting to keep people employed in the pursuit of achieving a successful retail transformation. That is a Herculean task if there ever was one. If he fails, the bull thesis goes that the approximate liquidation value of the inventory likely settles the majority of Sears' liabilities. If you're not getting the real estate for free, then it's not too far off either. More property than Simon. That's crazy to me. Simon owns a lot of property. Time will tell. If Sears shareholders get left with nothing at the end of the day, then something is seriously wrong. Then again, how do you run off with all that real estate? The fact that Sears spooks most people makes me even more bullish. I'll buy on Thursday if the results are poor as expected. I'll be greedy when others are fearful.

 

It might be a bit optimistic to say that one is getting the RE for free.  It is probably better to project that in case of run-off, you basically don't lose any money. 

 

It will be interesting to see what new metrics ESL decides to disclose in the next earnings report.  He says that the financial results are obscuring the results of the transformation.  Well, let's see what he's got, then!

[saltybit]

If I were in Eddie Lampert's shoes and really wanted to keep running the retail operation, I would consider overhauling some of the merchandise and brands in Sears.

Sears doesn't sell a lot of unique merchandise. Consumers do price-comparison these days for products and the SKUs that Sears stocks are probably also available on Amazon. People also have no incentive to go into the store if they know what the product looks like already and they can just buy it online, unless they happen to be at the mall and the price difference is small.

 

Given that they have a lot of real estate, I would consider partnering up with online merchants trying to establish a physical presence.

Partnering with the likes of Warby Parker, some of the bigger sellers on Etsy, modcloth, etc. by providing them a way to display or sell their products in Sears stores gives those sellers another distribution channel, and for Sears it gives them more foot traffic, especially if they get exclusivity with some of these online merchants and/or they switch out the merchandise every few weeks. (ala Zara)

 

Sears can price the items slightly higher, (consumers might be willing to pay a bit higher up to the shipping cost if they order online) or allow consumers to get membership points on their Sears rewards for these purchases which will encourage them to shop for other items on Sears that they might otherwise buy from Amazon. These merchants can also most likely give Sears a cut without raising the price, given the overhead of shipping for free samples. (ie. Warby Parker)

 

My opinion is that in retail, some of the more critical factors are price, convenience, and selection/merchandise. It's hard to out-convenience Amazon. Outpricing them is also hard. (Bezos: your margin is my opportunity)

That leaves merchandise, and some of these online stores don't need to list on Amazon, but do want a physical location, giving Sears an advantage there.

 

[txlaw]

Given that they have a lot of real estate, I would consider partnering up with online merchants trying to establish a physical presence.

Partnering with the likes of Warby Parker, some of the bigger sellers on Etsy, modcloth, etc. by providing them a way to display or sell their products in Sears stores gives those sellers another distribution channel, and for Sears it gives them more foot traffic, especially if they get exclusivity with some of these online merchants and/or they switch out the merchandise every few weeks. (ala Zara)

 

Here's the question, though:  what successful new online brand would actually want their merchandise in Sears/Kmart stores? 

 

There's no way in hell a Warby Parker or anyone trying to build brand cache would want their name associated with Sears.  If you're an online brand that is up and coming -- take a Bonobos, for example -- and you want a physical presence, you set up showrooms where people can test goods out and then order online.  You don't expect to make material sales from foot traffic.

 

I contend that the real competitive advantage for Sears (and only Sears -- not Kmart) has been with appliances and tools, where you want to see the thing in person, buy it, have somebody set the thing up (if applicable), and possibly establish a service relationship.  That's why I have been dismayed by the fact that Kmart still exists and there hasn't been more of an effort to get away from full line Sears stores.

[saltybit]

Given that they have a lot of real estate, I would consider partnering up with online merchants trying to establish a physical presence.

Partnering with the likes of Warby Parker, some of the bigger sellers on Etsy, modcloth, etc. by providing them a way to display or sell their products in Sears stores gives those sellers another distribution channel, and for Sears it gives them more foot traffic, especially if they get exclusivity with some of these online merchants and/or they switch out the merchandise every few weeks. (ala Zara)

 

Here's the question, though:  what successful new online brand would actually want their merchandise in Sears/Kmart stores? 

 

There's no way in hell a Warby Parker or anyone trying to build brand cache would want their name associated with Sears.  If you're an online brand that is up and coming -- take a Bonobos, for example -- and you want a physical presence, you set up showrooms where people can test goods out and then order online.  You don't expect to make material sales from foot traffic.

 

I contend that the real competitive advantage for Sears (and only Sears -- not Kmart) has been with appliances and tools, where you want to see the thing in person, buy it, have somebody set the thing up (if applicable), and possibly establish a service relationship.  That's why I have been dismayed by the fact that Kmart still exists and there hasn't been more of an effort to get away from full line Sears stores.

 

You are right about Warby Parker and some of the hipper online merchants. I mentioned them because those were the merchants that I remembered off the top of my head.

 

The main point I was trying to make was being unique in terms of merchandise, and one way to do it is finding something with some proven demand already that just needs more exposure.

 

Is there anything unique that Sears offers in terms of appliances and tools? Most stores that sell these probably offer installation and servicing...

[Luke 532]

Kmart development approved

http://www.portnews.com.au/story/2298277/kmart-development-approved/?cs=12

 

PORT Macquarie's multi-million dollar Kmart development proposal was unanimously approved at Wednesday night's council meeting.

 

Tony Thorne, from King and Campbell, represented the discount store at the Port Macquarie-Hastings Council meeting and, unsurprisingly, spoke in support of the $17.6 million development application.

 

The discount store giant has plans for specialty shops fronting Park Street and parking for 375 vehicles with access from Park Street and Warlters Street. The project would also involve road upgrades, traffic management work and landscaping.

 

The council's Development Assessment Panel examined the development application late last month.

 

The development approval is subject to a number of conditions.

 

Mayor Peter Besseling described the decision as another significant step forward in the town’s development.

 

He said the complex would not only cater to local residents - encouraging them to do more of their shopping locally - but would also help attract people to the region.

 

The council’s director development and environment, Matt Rogers, said Kmart had entered into an agreement to undertake a number of pedestrian and traffic improvements.

 

Those improvements will include the installation of traffic lights on the corner of Park and Warlters Street, the upgrade of Warlters Street to a four-lane median-separated road  and a pedestrian crossing in Park Street linking a proposed town square with the adjacent marina development.

[peridotcapital]

Sears Canada Q1 same store sales down 7.6%. Fortunately for SHLD, it only represents 5% of total company sales, so the negative impact to SSS this quarter will only be about 40 bps.

[Uccmal]

article from Financial Post:

 

http://business.financialpost.com/2014/05/20/whats-left-of-sears-canada/

 

 

[peridotcapital]

Here's the second blog post,  following up the Sears post from earlier this week:

 

http://www.peridotcapital.com/2014/05/even-great-investors-like-bruce-berkowitz-make-mistakes.html

[ni-co]

Here's the second blog post,  following up the Sears post from earlier this week:

 

http://www.peridotcapital.com/2014/05/even-great-investors-like-bruce-berkowitz-make-mistakes.html

 

Thank you for sharing! I very much enjoy your posts and fully agree that SHLD could be one of his mistakes, especially considering the timeframe and Berkowitz's potential CAGR on it ("premature accumulation"). However, I think it's too early to come to this conclusion. As long as Berkowitz is still fully invested – and adding to his position – I don't find it convincing to argue with the stock price development. This is a little too much EMH for my taste, especially for this kind of investment, where the stock is supposed to multiply if Berkowitz is proven right.

 

I know that he has been talking a lot about the real estate but there is also the "Mini-Berkshire" aspect of his thesis and also the chance of the transformation succeeding – the "grand slam home run" scenario as Berkowitz calls it.

 

Finally, I don't think that we have any proof that he was wrong about his RE appraisals – actually RE sales until know have confirmed that there is tremendous value in the SHLD RE portfolio.

[constructive]

Kmart development approved

http://www.portnews.com.au/story/2298277/kmart-development-approved/?cs=12

 

PORT Macquarie's multi-million dollar Kmart development proposal was unanimously approved at Wednesday night's council meeting.

 

SHLD doesn't own Kmart Australia.

 

http://en.wikipedia.org/wiki/Kmart_Australia

[Luke 532]

Kmart development approved

http://www.portnews.com.au/story/2298277/kmart-development-approved/?cs=12

 

PORT Macquarie's multi-million dollar Kmart development proposal was unanimously approved at Wednesday night's council meeting.

 

SHLD doesn't own Kmart Australia.

 

http://en.wikipedia.org/wiki/Kmart_Australia

 

I hate it when irrelevant stuff is posted.  My mistake for being the culprit... egg on my face.

[txlaw]

Is there anything unique that Sears offers in terms of appliances and tools? Most stores that sell these probably offer installation and servicing...

 

Sears (not Kmart) is unique because of mind share (still a place one thinks of for appliances/tools in the US, though they continue to lose ground to HD and LOW), market share, which is still over 20% and should allow them to be a low cost provider, and their branded solutions (Kenmore and Craftsmen are still valuable brands).  They also have service and parts, so it's a full appliance/tool solution.

 

You can see that they actually are sort of an implementing the shift via SHOS.  SHOS is a more appliance/tool-centric format, and as full line SHLD stores get closed, customer recapture comes from the new format.  So it's not like they're not aware of their appliance/tool-centric nature.  But the problem is that the Sears brand suffers immensely by being this hybrid monster that also carries soft line goods. 

[peridotcapital]

 

Thank you for sharing! I very much enjoy your posts and fully agree that SHLD could be one of his mistakes, especially considering the timeframe and Berkowitz's potential CAGR on it ("premature accumulation"). However, I think it's too early to come to this conclusion. As long as Berkowitz is still fully invested – and adding to his position – I don't find it convincing to argue with the stock price development. This is a little too much EMH for my taste, especially for this kind of investment, where the stock is supposed to multiply if Berkowitz is proven right.

 

I know that he has been talking a lot about the real estate but there is also the "Mini-Berkshire" aspect of his thesis and also the chance of the transformation succeeding – the "grand slam home run" scenario as Berkowitz calls it.

 

Finally, I don't think that we have any proof that he was wrong about his RE appraisals – actually RE sales until know have confirmed that there is tremendous value in the SHLD RE portfolio.

 

Just for the record, I am not saying SHLD's NAV is $40 because that is where the stock is trading today (not an EMH person by any means). But I also don't think NAV is anywhere close to $150 like Berkowitz says, which is the high end of Baker Street's NAV estimate.

 

Can SHLD turn out to be a successful investment for him? I guess it depends on how you define a success. Let's assume for a moment that SHLD's NAV is $150 today and will grow 3%/year for the next 10 years, at which time the company will be completely liquidated (NAV around $200 at that time). If his current cost basis is $65 or thereabouts (~$85 less ~$20 of spin-offs/dividends so far), he'll get a triple over 20 years (weighted-average holding period is maybe closer to 15 years, so I'll use that).  Even ignoring his 1% annual management fee, that will not come close to the return of the S&P 500 index. And that is a hugely bullish scenario. I guess very little is impossible, but I don't think the jury is still out as to whether SHLD can be a winner for him (I'll loosely quantify a "winner" as a 13% CAGR or better -- 2%/year above the S&P 500's long-term average plus his 1% management fee). 

 

Lastly, all of that assumes the most valuable asset (the RE) is completely liquidated at a full and fair price. If Sears still has a retail presence, which I think is obvious given Eddie's repeated comments, then the RE value matters far less (even if only a few hundred stores are open by then, they'll be the most valuable ones). The market is not going to value the top mall locations based on RE values if they are being used for retailing operations (plenty of retailers and restaurants own their stores, but the stocks are valued based on cash flow, not appraised land value).