SHLDQ - Sears Holdings Corp

[texual]

Are y'all aware that Bruce Berkowitz first began investing in Sears Holdings starting in 2005... in a few months this will be his tenth year of owning the company. At no point did he sell out of the stock. If he ever lightened up on it, it was short lived. The chart of his ownership has skyrocketed in the last decade. I am actually trying to ask if anyone can remember whether Bruce Berkowitz has owned any company in his fund for 10 years. I don't even know if St Joe was until later. I could be wrong on that but Sears does seem to be his longest term holding, also one of the worst performers too.

 

 

The Sears story continues.

[texual]

Not to get sidetracked but I was sick of hearing about the debt/pension so I dug around in Fairholme and found this quote.

 

Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years

ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is

no different, in our view, from debt.

[Picasso]

Not to get sidetracked but I was sick of hearing about the debt/pension so I dug around in Fairholme and found this quote.

 

Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years

ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is

no different, in our view, from debt.

 

I think Berkowitz loses some credibility when he includes a per share return of capital in buybacks and pension reduction to dismiss a $12 loss in 2013.  Swap out Sears for another company, say Eastman Kodak, and I'm sure it sounded nice to see your stake in a company funneling down the toilet increase because the cash was spent on unproductive assets.  The pension is non-productive in my view and buying up shares at $150 doesn't exactly provide the best returns even if the stock gets back up there in the next few years.

 

Something that worries me about SHLD is if Berkowitz ever sold.  It would not be a pretty outcome for other shareholders given most retail investors have copied Berkowitz on this ten year trade. 

[wisdom]

http://www.bloomberg.com/news/2014-08-25/what-sears-could-do-to-fix-things-borrow-sell-spin-off.html?cmpid=yhoo

 

[Guest wellmont]

Not to get sidetracked but I was sick of hearing about the debt/pension so I dug around in Fairholme and found this quote.

 

Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years

ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is

no different, in our view, from debt.

 

I think Berkowitz loses some credibility when he includes a per share return of capital in buybacks and pension reduction to dismiss a $12 loss in 2013.  Swap out Sears for another company, say Eastman Kodak, and I'm sure it sounded nice to see your stake in a company funneling down the toilet increase because the cash was spent on unproductive assets.  The pension is non-productive in my view and buying up shares at $150 doesn't exactly provide the best returns even if the stock gets back up there in the next few years.

 

Something that worries me about SHLD is if Berkowitz ever sold.  It would not be a pretty outcome for other shareholders given most retail investors have copied Berkowitz on this ten year trade.

 

distributed $66 a share of cash is highly misleading. much of that cash was "distributed" via share repurchases at valuation in the $100s, ultimately destroying shareholder value. the stock has been a disaster for FF on opportunity cost alone. with regards to pension, it's not like shld had a choice. the plan was so underfunded that the only legal alternative was to throw money at it. I don't give points for that.

[ni-co]

Not to get sidetracked but I was sick of hearing about the debt/pension so I dug around in Fairholme and found this quote.

 

Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years

ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is

no different, in our view, from debt.

 

I think Berkowitz loses some credibility when he includes a per share return of capital in buybacks and pension reduction to dismiss a $12 loss in 2013.  Swap out Sears for another company, say Eastman Kodak, and I'm sure it sounded nice to see your stake in a company funneling down the toilet increase because the cash was spent on unproductive assets.  The pension is non-productive in my view and buying up shares at $150 doesn't exactly provide the best returns even if the stock gets back up there in the next few years.

 

Something that worries me about SHLD is if Berkowitz ever sold.  It would not be a pretty outcome for other shareholders given most retail investors have copied Berkowitz on this ten year trade.

 

distributed $66 a share of cash is highly misleading. much of that cash was "distributed" via share repurchases at valuation in the $100s, ultimately destroying shareholder value. the stock has been a disaster for FF on opportunity cost alone. with regards to pension, it's not like shld had a choice. the plan was so underfunded that the only legal alternative was to throw money at it. I don't give points for that.

 

1. The jury is still out whether this was "ultimately destroying shareholder value". If the asset intrinsic value of SHLD is still above $100, it was actually creating shareholder value. True, with 20/20 hindsight, ESL should have bought back shares last year.

 

2. Buying back shares is effectively the same as paying a dividend – regardless of price. Leaving aside the tax implications, if SHLD had paid a dividend at the time and you'd reinvested it at $100 a share, the result would be exactly the same. If management buys back shares and you don't like the price, sell your stock in the ratio of the buyback and you will get your cash "dividend" this way without any dilution of your ownership stake. There is a huge back and forth in the BAC thread about this (if I remember correctly and also here), but this is the essence of it. Taking this into account I don't think anything is wrong with Berkowitz's statement. You're implying with your statements that you think the intrinsic value is lower and that's just fine – but I don't think Berkowitz would agree and so the statement is right from his point of view (and I happen to agree).

 

3. True, paying back pension liabilities is not productive, but it's certainly not "destroying value" – and that's what we were discussing. It may even have the benefit of de-risking the balance sheet (this is what Berkowitz was referring to), if they don't do it the way they do it now (by simply exchanging two liabilities).

[merkhet]

I think Berkowitz's point is that while 2013 had a disastrous loss of $12 per share, it would behoove people to remember that the company has produced $93 per share of "value" over the last 9 years. ("Value" is in quotes because wellmont is correct to point out that certain capital allocation decisions, such as the buybacks in hindsight, seem to have been poor.)

 

Now, this is a bit muddled as some of the value produced to pay down the $27 per share of pension liability was done, as ni-co points out, via exchanging one form of liability for another -- but the overall point is just to provide a little perspective.

[Picasso]

Not to get sidetracked but I was sick of hearing about the debt/pension so I dug around in Fairholme and found this quote.

 

Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years

ago, Sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is

no different, in our view, from debt.

 

I think Berkowitz loses some credibility when he includes a per share return of capital in buybacks and pension reduction to dismiss a $12 loss in 2013.  Swap out Sears for another company, say Eastman Kodak, and I'm sure it sounded nice to see your stake in a company funneling down the toilet increase because the cash was spent on unproductive assets.  The pension is non-productive in my view and buying up shares at $150 doesn't exactly provide the best returns even if the stock gets back up there in the next few years.

 

Something that worries me about SHLD is if Berkowitz ever sold.  It would not be a pretty outcome for other shareholders given most retail investors have copied Berkowitz on this ten year trade.

 

distributed $66 a share of cash is highly misleading. much of that cash was "distributed" via share repurchases at valuation in the $100s, ultimately destroying shareholder value. the stock has been a disaster for FF on opportunity cost alone. with regards to pension, it's not like shld had a choice. the plan was so underfunded that the only legal alternative was to throw money at it. I don't give points for that.

 

1. The jury is still out whether this was "ultimately destroying shareholder value". If the asset intrinsic value of SHLD is still above $100, it was actually creating shareholder value. True, with 20/20 hindsight, ESL should have bought back shares last year.

 

2. Buying back shares is effectively the same as paying a dividend – regardless of price. Leaving aside the tax implications, if SHLD had paid a dividend at the time and you'd reinvested it at $100 a share, the result would be exactly the same. If management buys back shares and you don't like the price, sell your stock in the ratio of the buyback and you will get your cash "dividend" this way without any dilution of your ownership stake. There is a huge back and forth in the BAC thread about this (if I remember correctly and also here), but this is the essence of it. Taking this into account I don't think anything is wrong with Berkowitz's statement. You're implying with your statements that you think the intrinsic value is lower and that's just fine – but I don't think Berkowitz would agree and so the statement is right from his point of view (and I happen to agree).

 

3. True, paying back pension liabilities is not productive, but it's certainly not "destroying value" – and that's what we were discussing. It may even have the benefit of de-risking the balance sheet (this is what Berkowitz was referring to), if they don't do it the way they do it now (by simply exchanging two liabilities).

 

My problem is that SHLD gets a pass by buying up so much stock at such a high price as if you see the benefit of this.    What is the current value of those shares if they were resold in the market today?  Even if you ignore the effect on the market of a massive share sale, that value is gone.  It only comes back if the price of SHLD can get back above those buyback levels.  What happens if Lampert takes SHLD private?  Any other shareholder long in the market will see absolutely no benefit to that buyback.

 

While I am as guilty as the next investor of overpaying for an asset, I get a bit frustrated how SHLD gets to claim "value" is created by blowing the cash hoard at 3-4x the current share price.

 

The past is the past and we should focus on the future of SHLD, but if Berkowitz wants to state those figures and be misleading then I have no problem saying that's a stupid way of rationalizing a loss in SHLD.

[sampr01]

On same argument, Can Eddie buy 30 mil shares at today's price ;D?. He can't

[Luke 532]

Latest SHC Speaks blog post:

Meet Bill Hutchinson, SVP and President, Supply Chain http://blog.searsholdings.com/leadership-viewpoint/meet-bill-hutchinson-svp-and-president-supply-chain/

[alertmeipp]

He really talks bullish.

[ERICOPOLY]

Latest SHC Speaks blog post:

Meet Bill Hutchinson, SVP and President, Supply Chain http://blog.searsholdings.com/leadership-viewpoint/meet-bill-hutchinson-svp-and-president-supply-chain/

 

Every time I see somebody call "Buy Online, Pick-up In Store" innovative, it makes me think these guys haven't spent a second outside in the real world.  They seem to have no idea that their competitors also do that, and that... therefore... it's not innovation.

 

So is this guy the last to find out?  Should we tell him?  It's embarrassing to hear him mention it as innovative.

[ERICOPOLY]

Or is his point simply that it's innovative to buy it online and pick it up in EITHER Sears or Kmart, whichever is closer.

 

And therefore are they trying to get to a point where you order something online and pick it up from ANY store that partners with SYW.  So perhaps you eventually pick it up from Target if that's the closest store with the item (if Target partners with SYW).

 

It's just strange.

 

 

[Myth465]

Latest SHC Speaks blog post:

Meet Bill Hutchinson, SVP and President, Supply Chain http://blog.searsholdings.com/leadership-viewpoint/meet-bill-hutchinson-svp-and-president-supply-chain/

 

Every time I see somebody call "Buy Online, Pick-up In Store" innovative, it makes me think these guys haven't spent a second outside in the real world.  They seem to have no idea that their competitors also do that, and that... therefore... it's not innovation.

 

So is this guy the last to find out?  Should we tell him?  It's embarrassing to hear him mention it as innovative.

 

Eddie is talking his book.

 

Im shocked we have value investors accepting that though.

If you read this thread you think SYW is the second coming of the big guy himself.......

 

[ni-co]

My problem is that SHLD gets a pass by buying up so much stock at such a high price as if you see the benefit of this.    What is the current value of those shares if they were resold in the market today?  Even if you ignore the effect on the market of a massive share sale, that value is gone.  It only comes back if the price of SHLD can get back above those buyback levels.  What happens if Lampert takes SHLD private?  Any other shareholder long in the market will see absolutely no benefit to that buyback.

 

While I am as guilty as the next investor of overpaying for an asset, I get a bit frustrated how SHLD gets to claim "value" is created by blowing the cash hoard at 3-4x the current share price.

 

The past is the past and we should focus on the future of SHLD, but if Berkowitz wants to state those figures and be misleading then I have no problem saying that's a stupid way of rationalizing a loss in SHLD.

 

I got that. All I say is that you have to be aware of hindsight bias. If I offered you to triple your money on a heads, you agreed, we tossed the coin and tails showed up, would you say it was a mistake to take the bet?

 

If you agree with the Buffett way of thinking that buying back shares is value accretive if share price < intrinsic value and value destroying if share price > intrinsic value, you can't argue with a lower market price after the buyback – future market price is simply not part of this equation. If you took Eric's point of view (looking at it as a dividend) even market price wouldn't matter. While I agree that Eric's point is technically correct I'm hesitant to look at it this way, because I like it much better when management does value accretive buybacks than when a dividend is being "forced" upon me as a shareholder.

 

So, the question I ask myself when judging ESL's buybacks is: Did he buy back shares above intrinsic value or not? If you think IV is > $100 then it wasn't destroying value. Was it a mistake? Only if you could have known what would happen in the years after the buyback – and I think you couldn't.

 

Maybe ESL has made some mistakes along the way, e.g. the back and forth on Sears Canada, maybe waiting too long with closing stores, but I haven't seen him make really severe mistakes, whereby I mean taking bets that make no sense to begin with.

[Parsad]

Or is his point simply that it's innovative to buy it online and pick it up in EITHER Sears or Kmart, whichever is closer.

 

And therefore are they trying to get to a point where you order something online and pick it up from ANY store that partners with SYW.  So perhaps you eventually pick it up from Target if that's the closest store with the item (if Target partners with SYW).

 

It's just strange.

 

But even that doesn't matter because most online stores will deliver for low-cost and often free, as quick as transferring from one store to another for on-site pickup. 

 

I ordered a printer for the office from Staples...the cost was the same or cheaper than anywhere else...they delivered it for free the next day.  What is Sears going to do that will be so revolutionary to beat Staples?  Or Amazon?  Or even Overstock.com? 

 

I was Sears' core customer 15-20 years ago...I never go there anymore...many of the locations that were convenient have closed.  Their inventory levels aren't competitive, the shopping experience is poor, customer service and staffing is low.  The only thing they can compete on relatively well is price, but Loblaws, Walmart, Staples, The Brick, HBC will all match or beat them. 

 

Thus the losses and misfortune you now see at Sears Canada...which mirrors what has been happening in the U.S. for even longer.  Cheers!

[valueyoda]

Exactly. Lampert knows that he had to evolve the business model into an omni-retail strategy with significant online presence, but the competition on all levels has evolved just as well, so that gap between sears and the competition hasn't shrunk.

 

If you just look at the consumer engagement on shopyourway.com (e.g. in the book department, which bytheway has terrible selection and offers or other departments) or on the facebook page, and you compare that to other retail websites, one can only conclude that shop your way is going to be a terribly expensive flop.

[merkhet]

It's difficult to know whether there's some sort of Kleig-Light bias here, but I'm starting to see more Sears advertisements rather than less. Maybe it's just a difference between the Houston metro and DC metro areas?

[Luke 532]

Another SHC Speaks blog post...

Look Closer

http://blog.searsholdings.com/leadership-viewpoint/look-closer/

[BTShine]

Another SHC Speaks blog post...

Look Closer

http://blog.searsholdings.com/leadership-viewpoint/look-closer/

 

That blog piece was interesting.  Bold message coming from SHLD HQ. 

 

"...we are in the middle of an exponential transformation."

 

"Look closer and you’ll see the green blades of a new SHC emerging."

 

 

 

 

[abitofvalue]

 

That blog piece was interesting.  Bold message coming from SHLD HQ. 

 

"...we are in the middle of an exponential transformation."

 

"Look closer and you’ll see the green blades of a new SHC emerging."

 

I actually thought it was more of the same - middle of an exponential transformation - isnt clear to outsiders yet - insiders are seeing the signs ("green shoots") - lots of innovation - changing culture - apple - exciting - transformation - SYW.

 

All they do on the blog is buzzwords and management speak without actually saying anything.

 

 

[enoch01]

 

That blog piece was interesting.  Bold message coming from SHLD HQ. 

 

"...we are in the middle of an exponential transformation."

 

"Look closer and you’ll see the green blades of a new SHC emerging."

 

I actually thought it was more of the same - middle of an exponential transformation - isnt clear to outsiders yet - insiders are seeing the signs ("green shoots") - lots of innovation - changing culture - apple - exciting - transformation - SYW.

 

All they do on the blog is buzzwords and management speak without actually saying anything.

 

I wonder how the incentives are set up by Lampert.  I think he's getting surrounded by people who say things he likes to hear.

[alertmeipp]

Are those senior management even shop in sears anymore?

 

Those green signs are not showing in the financial.

 

Why dont they just be specific.

And i see no insider buy from most of managemen. Like this is cheap if retail is turning around.

 

 

Just blah blah blah yet again, show me the result.

[ni-co]

I wonder how the incentives are set up by Lampert.

 

I think this is an easy one. It's ROIC everywhere. Got to love that he mentioned the game of Jenga.

[Luke 532]

Got to love that he mentioned the game of Jenga.

 

I loved that reference... classic.