SHLDQ - Sears Holdings Corp

[tylerdurden]

Contrarian view:

 

http://online.barrons.com/news/articles/SB50001424053111903891504579121603785394482

 

Even with the assumption that Baker Street's analysis is accurate in terms of the Real Estate values, if you keep on loosing money on your operations, no real estate or separate department sales can go forever. It seems at some point Eddie Lampert will have to admit that retail turnarounds might not be one of his strengths and admit failure. (I don't think simple loyalty programs and investing online will be the answer to Sears problems.) Potentially after depleting some of the real estate value for staying float, if there is real liquidation at the end, what is the liquidation value of the remaining real estate portfolio under possible distressed sale? That's another unknown. Maybe there is still huge margin of safety here that I cannot see. I am sure brilliant guy such as Berkowitz is not waiting for nothing for almost 10 years, but it's really hard for me to see the end game here... 

[Luke 532]

Contrarian view:

 

http://online.barrons.com/news/articles/SB50001424053111903891504579121603785394482

 

Even with the assumption that Baker Street's analysis is accurate in terms of the Real Estate values, if you keep on loosing money on your operations, no real estate or separate department sales can go forever. It seems at some point Eddie Lampert will have to admit that retail turnarounds might not be one of his strengths and admit failure. (I don't think simple loyalty programs and investing online will be the answer to Sears problems.) Potentially after depleting some of the real estate value for staying float, if there is real liquidation at the end, what is the liquidation value of the remaining real estate portfolio under possible distressed sale? That's another unknown. Maybe there is still huge margin of safety here that I cannot see. I am sure brilliant guy such as Berkowitz is not waiting for nothing for almost 10 years, but it's really hard for me to see the end game here...

 

Contrarian view?  Investing in SHLD is the contrarian view. 

 

I was hoping that the ZeroHedge crowd (assuming this is the same "TylerDurden") wouldn't find the COB&F boards.  If they do this will quickly turn into a Yahoo message board.

[tylerdurden]

Contrarian view for this board my friend since everybody seems in favor of this idea here.

 

My intention is to have some intellectual discussion here. Just to see what i might be missing that others are seeing in this investment idea. That should be the main idea of having these boards right? not pumping each other in terms of how right we are in our investment decisions... If that's what you wanna do, be my guest.

 

"If they do this will quickly turn into a Yahoo message board" If they do what? If they ask some questions to facilitate some discussion? If you are not going to discuss anything here why are here to begin with? Also what tells you that i am from the "Zerohedge crowd"? Only this shows me how deep you are in terms of evaluating certain matters...

[PLynchJr]

You really need to take the time to go back and read the thread.  The bull and bear case has been discussed in great detail.  You would be very wrong to assume everyone here thinks SHLD is a great investment.

[Luke 532]

Contrarian view for this board my friend since everybody seems in favor of this idea here.

 

If you take the time to read the thread you'd find that's not the case.  There are plenty of bears commenting.

 

My intention is to have some intellectual discussion here. Just to see what i might be missing that others are seeing in this investment idea.

 

I'm sure your intention is to have an intellectual discussion.  Perhaps taking the time to read what has already been discussed would be an intellectual step to take.

 

If you are not going to discuss anything here why are here to begin with?

 

There are 576 pages of discussion.

 

Also what tells you that i am from the "Zerohedge crowd"? Only this shows me how deep you are in terms of evaluating certain matters...

 

Your username is the same as the guy that runs ZH.  If it's not you, no big deal.  But if it is you, the vast majority of comments from your followers on your website are, well let's just say, "entertaining."  I'll just leave it at that.  Feel free to comment on COB&F as you see fit but if your intention is to have an intellectual discussion, as you claim, it might be in your best interest to actually read what has already been discussed and then expand on that.

[adesigar]

Also what tells you that i am from the "Zerohedge crowd"? Only this shows me how deep you are in terms of evaluating certain matters...

 

Your username is the same as the guy that runs ZH.  If it's not you, no big deal.  But if it is you, the vast majority of comments from your followers on your website are, well let's just say, "entertaining."  I'll just leave it at that.  Feel free to comment on COB&F as you see fit but if your intention is to have an intellectual discussion, as you claim, it might be in your best interest to actually read what has already been discussed and then expand on that.

 

That name is of a character in Fight Club. The first rule of COBAF is you do not talk about COBAF. The second rule of COBAF is you do not talk about COBAF. The third rule of COBAF is it helps to read the whole topic (especially for the longer threads).

 

Im one of the SHLD bulls so ill lay out my simple reasoning. For me its a Jockey stock. Eddie Lampert is a smart guy who has proven himself over a long time. Most of his personal wealth is in SHLD. Hes trying to make it survive and eventually succeed as an integrated retailer. If it works its a multi bagger. If not the assets provide downside protection. I am a longtime holder of FAIRX (another Jockey investment) so I also trust Bruce Berkowitz who puts the value north of $150. So heads I make multiples, tails I don't lose much. One thing about the don't lose is the price people paid for SHLD. If someone bought most of their stock years ago in the 140-180 range then I don't know what to say. My adjusted price (Sears Canada, Sears outlet, Lands End) is under $30.

 

The plan for SHLD as I see it (whether it succeeds I don't know)

1. Shift Kenmore, Craftsman, Die Hard sales to SHOS. Contract requires all SHOS stores to reserve nearly 50% space for KCD.

2. Sell KCD at other stores like Costco, Ace Hardware, Auto parts stores

3. Reduce square footage for apparel

4. Move the rest of the sales online

5. Online + Fewer and smaller stores providing best of both worlds.

6. Close unprofitable/marginal stores

7. Use Shop Your Way points to get customers into a loyalty loop instead of a sales funnel and then Reduce marketing expenses

8. Possibly provide pickup and returns in stores for Marketplace sellers (Walmart/Target could also do this)

9. Lease out the freed up space for rental income

 

 

 

[Luke 532]

That name is of a character in Fight Club.

 

I know, it's one of my favorite movies (Ed Norton is awesome).  Just haven't seen that name used anywhere else in finance as a username so I figured it might be the ZH guy... probably is as he hasn't denied it.

[Luke 532]

Sears Became a Real-Time Digital Enterprise Due to Big Data

http://smartdatacollective.com/bigdatastartups/212091/sears-became-real-time-digital-enterprise-due-big-data

[Luke 532]

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.

 

Operating store opportunities down to 3018, while closed are up to 119 opportunities.

 

7/18/2014... operating opps: 2968, closed opps: 136

[Luke 532]

The recent Whirlpool deal values Indesit at 47% of sales: ~$1.7B on $3.6B of sales (60% of stock for $1.0B). 

 

Not apples-to-apples entirely, but it is still a very interesting comparison if you take 47% of SHLD’s appliance sales and compare that with its current market cap.

 

Highly recommended read: http://www.valueplays.net/2014/07/18/subs-whirlpool-deal-gives-insight-kenmore-valuation/

 

[abitofvalue]

The recent Whirlpool deal values Indesit at 47% of sales: ~$1.7B on $3.6B of sales (60% of stock for $1.0B). 

 

Not apples-to-apples entirely, but it is still a very interesting comparison if you take 47% of SHLD’s appliance sales and compare that with its current market cap.

 

Highly recommended read: http://www.valueplays.net/2014/07/18/subs-whirlpool-deal-gives-insight-kenmore-valuation/

 

Couldn't read the article as I don't subscribe to Mr. Sullivan's blog.  On an EBITDA multiple basis though it appears to be pretty reasonable.  2013 Ebitda is approx 180mm euros and the deal values the company at ~1.3bn so 6-7x EBITDA.  What would Kenmore look like on that basis?

 

I suspect that a lot of people will agree that on an SOTP basis sears is worth more than current EV.  However, as the company is consistently loosing money and using cash, the argument is really one of timing - can eddie (liquidate / turnaround retail / monetize real estate / realize value / whatever you think he is doing)  faster than he uses cash and that gap continues to shrink. 

 

For the bulls the answer is - I trust Eddie - he is a smart guy with a large proportion of his net worth in the asset and he will sure figure it out. And oh ya - Berkowitz is a super smart guy who agrees with me.

 

For the bears the answer is - Eddie is a smart guy but he is no retail operator. he is in over his head and this one cant be turned around as he wont be able to stop the bleeding fast enough.

 

[peridotcapital]

The recent Whirlpool deal values Indesit at 47% of sales: ~$1.7B on $3.6B of sales (60% of stock for $1.0B). 

 

Not apples-to-apples entirely, but it is still a very interesting comparison if you take 47% of SHLD’s appliance sales and compare that with its current market cap.

 

Highly recommended read: http://www.valueplays.net/2014/07/18/subs-whirlpool-deal-gives-insight-kenmore-valuation/

 

Couldn't read the article as I don't subscribe to Mr. Sullivan's blog.  On an EBITDA multiple basis though it appears to be pretty reasonable.  2013 Ebitda is approx 180mm euros and the deal values the company at ~1.3bn so 6-7x EBITDA.  What would Kenmore look like on that basis?

 

I suspect that a lot of people will agree that on an SOTP basis sears is worth more than current EV.  However, as the company is consistently loosing money and using cash, the argument is really one of timing - can eddie (liquidate / turnaround retail / monetize real estate / realize value / whatever you think he is doing)  faster than he uses cash and that gap continues to shrink. 

 

For the bulls the answer is - I trust Eddie - he is a smart guy with a large proportion of his net worth in the asset and he will sure figure it out. And oh ya - Berkowitz is a super smart guy who agrees with me.

 

For the bears the answer is - Eddie is a smart guy but he is no retail operator. he is in over his head and this one cant be turned around as he wont be able to stop the bleeding fast enough.

 

Comparing an appliance manufacturer with an appliance brand licensor is apples to oranges really. But we can still dig in a little based on what few disclosures we get.

 

SHLD's total 2013 home appliance sales were $4.7B (down from $6.0B in 2012). Kenmore is only a fraction of that, though. If you're overly generous and assume Kenmore is 40% of their appliance sales (given all the brands they carry this seems on the high side to me), then Kenmore retail sales would be in the $1.9B ballpark (and falling pretty fast). We don't know how the royalty agreement works (wholesale vs retail) but we can figure a royalty rate in the 5-6% area, so you can get a pretty good idea of what kind of operating income the "K" in KCD is generating.

 

The problem of course, is that the number of stores selling Kenmore is dropping, and Kenmore's share of the appliance market is also dropping, which would limit the valuation you would likely place on the brand because the brand is losing ground quickly. As a side note, when Baker Street came to an $800M value for Kenmore they assumed $4B of wholesale Kenmore sales, which is closer to $6B retail. Given that total home appliance sales at SHLD and SHOS combined in 2013 for all brands were around $6.3B, I don't see how that figure could be accurate.

[krazeenyc]

The recent Whirlpool deal values Indesit at 47% of sales: ~$1.7B on $3.6B of sales (60% of stock for $1.0B). 

 

Not apples-to-apples entirely, but it is still a very interesting comparison if you take 47% of SHLD’s appliance sales and compare that with its current market cap.

 

Highly recommended read: http://www.valueplays.net/2014/07/18/subs-whirlpool-deal-gives-insight-kenmore-valuation/

 

Couldn't read the article as I don't subscribe to Mr. Sullivan's blog.  On an EBITDA multiple basis though it appears to be pretty reasonable.  2013 Ebitda is approx 180mm euros and the deal values the company at ~1.3bn so 6-7x EBITDA.  What would Kenmore look like on that basis?

 

I suspect that a lot of people will agree that on an SOTP basis sears is worth more than current EV.  However, as the company is consistently loosing money and using cash, the argument is really one of timing - can eddie (liquidate / turnaround retail / monetize real estate / realize value / whatever you think he is doing)  faster than he uses cash and that gap continues to shrink. 

 

For the bulls the answer is - I trust Eddie - he is a smart guy with a large proportion of his net worth in the asset and he will sure figure it out. And oh ya - Berkowitz is a super smart guy who agrees with me.

 

For the bears the answer is - Eddie is a smart guy but he is no retail operator. he is in over his head and this one cant be turned around as he wont be able to stop the bleeding fast enough.

 

Comparing an appliance manufacturer with an appliance brand licensor is apples to oranges really. But we can still dig in a little based on what few disclosures we get.

 

SHLD's total 2013 home appliance sales were $4.7B (down from $6.0B in 2012). Kenmore is only a fraction of that, though. If you're overly generous and assume Kenmore is 40% of their appliance sales (given all the brands they carry this seems on the high side to me), then Kenmore retail sales would be in the $1.9B ballpark (and falling pretty fast). We don't know how the royalty agreement works (wholesale vs retail) but we can figure a royalty rate in the 5-6% area, so you can get a pretty good idea of what kind of operating income the "K" in KCD is generating.

 

The problem of course, is that the number of stores selling Kenmore is dropping, and Kenmore's share of the appliance market is also dropping, which would limit the valuation you would likely place on the brand because the brand is losing ground quickly. As a side note, when Baker Street came to an $800M value for Kenmore they assumed $4B of wholesale Kenmore sales, which is closer to $6B retail. Given that total home appliance sales at SHLD and SHOS combined in 2013 for all brands were around $6.3B, I don't see how that figure could be accurate.

 

Agree completely that comparing an appliance manufacturer with a brand licensor is apples to oranges.

 

I think there are a few things that you are missing here.

 

1) In 2012 for much of the year SHOS appliance sales are included with SHLD.  So it skews the #s a bit.

2) I think you underestimate the % of appliance sales at Sears attributed to Kenmore (as they strongly promote KCD products).Additionally, if you're not looking to buy a Kenmore model you're likely not buying it at Sears. (I wouldn't be surprised if Kenmore sales exceed 80% of their appliance sales at least at SHLD)

 

If you look at the top 10 sellers at Sears and see which are Kenmore

 

Refrigerators: 9 of 10

Dishwashers: 8 of 10

Ranges: 9 of 10

Dryers: 7 of 10

Washers: 5 of 10

 

I think outside of 1 washer (5th) a Kenmore product held the top 5 slots in all of the above categories.

[peridotcapital]

Agree completely that comparing an appliance manufacturer with a brand licensor is apples to oranges.

 

I think there are a few things that you are missing here.

 

1) In 2012 for much of the year SHOS appliance sales are included with SHLD.  So it skews the #s a bit.

2) I think you way underestimate the % of appliance sales at Sears attributed to Kenmore (as they strongly promote KCD products).Additionally, if you're not looking to buy a Kenmore model you're likely not buying it at Sears. (I wouldn't be surprised if Kenmore sales exceed 80% of their appliance sales at least at SHLD)

 

If you look at the top 10 sellers at Sears and see which are Kenmore

 

Refrigerators: 9 of 10

Dishwashers: 8 of 10

Ranges: 9 of 10

Dryers: 7 of 10

Washers: 5 of 10

 

I think outside of 1 washer (5th) a Kenmore product held the top 5 slots in all of the above categories.

 

Do you have any evidence of the 80%+ figure? They are all about marketing the fact that they carry the top 10 brands of appliances. If Kenmore is getting 80%+ of the sales and the other 9 brands are averaging 2% each, why on earth would you carry 10 brands (just say you are the only store with the top 5 brands)? It's hard for me to imagine given the variety they have on the sales floor that Kenmore could be anywhere 80%. And it wouldn't have to be for them to be the best sellers. Even if Kenmore had 40% share, the other 9 brands would average 7% share each, so it would be hard for non-Kenmore models to outsell Kenmore models.

[krazeenyc]

Agree completely that comparing an appliance manufacturer with a brand licensor is apples to oranges.

 

I think there are a few things that you are missing here.

 

1) In 2012 for much of the year SHOS appliance sales are included with SHLD.  So it skews the #s a bit.

2) I think you way underestimate the % of appliance sales at Sears attributed to Kenmore (as they strongly promote KCD products).Additionally, if you're not looking to buy a Kenmore model you're likely not buying it at Sears. (I wouldn't be surprised if Kenmore sales exceed 80% of their appliance sales at least at SHLD)

 

If you look at the top 10 sellers at Sears and see which are Kenmore

 

Refrigerators: 9 of 10

Dishwashers: 8 of 10

Ranges: 9 of 10

Dryers: 7 of 10

Washers: 5 of 10

 

I think outside of 1 washer (5th) a Kenmore product held the top 5 slots in all of the above categories.

 

Do you have any evidence of the 80%+ figure? They are all about marketing the fact that they carry the top 10 brands of appliances. If Kenmore is getting 80%+ of the sales and the other 9 brands are averaging 2% each, why on earth would you carry 10 brands (just say you are the only store with the top 5 brands)? It's hard for me to imagine given the variety they have on the sales floor that Kenmore could be anywhere 80%. And it wouldn't have to be for them to be the best sellers. Even if Kenmore had 40% share, the other 9 brands would average 7% share each, so it would be hard for non-Kenmore models to outsell Kenmore models.

 

Not sure. But lets take a look at their refrigerators for example.

 

Let's take a look at their top 50 selling fridges.

 

The non Kenmore models are:

 

10th, 15th, 20th, 21st, 26th, 29th, 32nd, 34th, 39th, 42nd -44th, 47th.

 

So out of their 50 top selling fridges, 37 are Kenmore brands and they dominate the top of the list which are likely much better sellers than the middle/bottom.

 

Let's take a look at their top 50 selling ranges.

 

9th, 13th, 18th, 21, 24, 25, 30, 31, 34, 40, 42, 43, 46, 49, 50.

 

Out of their 50 top selling ranges 35 are Kenmore  and they also dominate the top of the list.

[peridotcapital]

Here's a current job posting from Sears that pegs Kenmore annual revenue at "over $4 billion in sales annually."

 

https://www.linkedin.com/jobs2/view/17347640

 

Here's a LinkedIn profile for someone who worked there last year and cites a $4 billion figure:

 

https://www.linkedin.com/pub/brian-blewitt/6/8b6/bb8

 

If SHOS accounts for about $1 billion of that, then SHLD sales would be in the $3 billion neighborhood. So my 40% figure might be low, but 80% might be high. Looks like 60-65% might be a better educated guess.

[adesigar]

Here's a current job posting from Sears that pegs Kenmore annual revenue at "over $4 billion in sales annually."

 

https://www.linkedin.com/jobs2/view/17347640

 

Here's a LinkedIn profile for someone who worked there last year and cites a $4 billion figure:

 

https://www.linkedin.com/pub/brian-blewitt/6/8b6/bb8

 

If SHOS accounts for about $1 billion of that, then SHLD sales would be in the $3 billion neighborhood. So my 40% figure might be low, but 80% might be high. Looks like 60-65% might be a better educated guess.

 

Does it make a difference to the valuation of Kenmore whether SHLD sells its products or SHOS or Costco or XYZ ?

[peridotcapital]

Here's a current job posting from Sears that pegs Kenmore annual revenue at "over $4 billion in sales annually."

 

https://www.linkedin.com/jobs2/view/17347640

 

Here's a LinkedIn profile for someone who worked there last year and cites a $4 billion figure:

 

https://www.linkedin.com/pub/brian-blewitt/6/8b6/bb8

 

If SHOS accounts for about $1 billion of that, then SHLD sales would be in the $3 billion neighborhood. So my 40% figure might be low, but 80% might be high. Looks like 60-65% might be a better educated guess.

 

Does it make a difference to the valuation of Kenmore whether SHLD sells its products or SHOS or Costco or XYZ ?

 

The dollar value of the royalties could vary based on whether the products are sold wholesale or retail (same % but based off of differing price points), but we don't know how the agreements are structured. It also is not clear to me how KCD products are distributed based on who is selling the products (directly from the contract manufacturer to the retailer, or does KCD act as the wholesaler and distribute to the various stores, and does it vary with SHOS, SHLD, and COST).   

[bmichaud]

SHLD bulls should be encouraged if the COBF Tyler Durden is from ZH. Huge confirmation the bear thesis is priced in given ZH's shockingly consistent track record as a contrarian indicator.

[Luke 532]

SHLD bulls should be encouraged if the COBF Tyler Durden is from ZH. Huge confirmation the bear thesis is priced in given ZH's shockingly consistent track record as a contrarian indicator.

 

Couldn't have said it better myself.

[Luke 532]

Anybody else read the July 18th edition of The Kiplinger Letter?  The piece discussing car shopping in malls is interesting, especially given Lampert's recent meeting with Mulally.

[Luke 532]

Pure TalkUSA's mobile phone service now available on Shop Your Way®

http://www.marketwatch.com/story/pure-talkusas-mobile-phone-service-now-available-on-shop-your-way-2014-07-22

 

[merkhet]

Private equity firms search for auto repair shops

 

http://online.wsj.com/articles/private-equitys-latest-fix-auto-body-repair-1406129444

[Luke 532]

May 15, 2014...

Blackstone joins the party.  Nice!

http://www.sec.gov/Archives/edgar/data/1393818/000095012314006214/xslForm13F_X01/form13fInfoTable.xml

 

1,518,102 common

1,320,000 calls

 

July 23, 2014...

In the latest move, Blackstone Group BX +1.01% LP said this week it is acquiring a majority stake in Service King Collision Repair Centers from two Carlyle Group CG +1.12% LP funds. The deal values the Texas-based chain at about $650 million, according to people familiar with the matter. Blackstone plans to continue the expansion that more than tripled Service King's locations under the ownership of Carlyle.

http://online.wsj.com/articles/private-equitys-latest-fix-auto-body-repair-1406129444?mod=_newsreel_2

[merkhet]

I suspect that it is two different arms of Blackstone. The hedge fund arm and the private equity arm.

 

In any case, I hope ESL sells off Sears Auto & Sears Canada soon.