SHLDQ - Sears Holdings Corp

[ni-co]

The analogies convinced me: SHLD has to go to zero. There is no other possible outcome.

[ni-co]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

[Luke 532]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

 

Probably the same thing he's been saying for years, that the value is multiples of the current price and that he's been adding every single quarter.

[ERICOPOLY]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

 

Probably the same thing he's been saying for years, that the value is multiples of the current price and that he's been adding every single quarter.

 

In prior years he talked about Sears making a whole lot of money from appliance sales... he said those sales were only temporarily depressed by the housing market.

 

Well, he's been proved dead wrong but he hasn't admitted to it.  Instead, he just talks about future positive things that can't yet be proved wrong.

[ni-co]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

 

Probably the same thing he's been saying for years, that the value is multiples of the current price and that he's been adding every single quarter.

 

In prior years he talked about Sears making a whole lot of money from appliance sales... he said those sales were only temporarily depressed by the housing market.

 

Well, he's been proved dead wrong but he hasn't admitted to it.  Instead, he just talks about future positive things that can't yet be proved wrong.

 

Yes, that's true. I was wondering more whether he will say anything with regard to the bridge loan.

[merkhet]

At least two of us are going to the Graham & Dodd breakfast on October 24th in NYC, so we'll see if we can sneak in a question or two.

[peridotcapital]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

 

Probably the same thing he's been saying for years, that the value is multiples of the current price and that he's been adding every single quarter.

 

In prior years he talked about Sears making a whole lot of money from appliance sales... he said those sales were only temporarily depressed by the housing market.

 

Well, he's been proved dead wrong but he hasn't admitted to it.  Instead, he just talks about future positive things that can't yet be proved wrong.

 

He also keeps repeating the same estimate of NAV per share (or thereabouts) every time he talks about it. And yet, at least using any reasonable assumptions, NAV has been declining for 3+ years due to the extent of the cash burn since 2011. But if you asked him today he'd probably say NAV is still $150/share. I'd love for him to admit that maybe NAV is $100 or $125 now. It's not like it would change his thesis with the stock at $27.

[randomep]

 

 

Can anyone give background info on baker street capital? thanks

 

They are almost certainly huge Gerry Rafferty fans.  More than that, I don't know.

 

You sure that is the same baker street? their website shows an old picture of a street with buggy's and horse poop

 

 

[Kraven]

 

 

Can anyone give background info on baker street capital? thanks

 

They are almost certainly huge Gerry Rafferty fans.  More than that, I don't know.

 

You sure that is the same baker street? their website shows an old picture of a street with buggy's and horse poop

 

I'm pretty sure.  I mean who isn't a Gerry Rafferty fan?  "Winding your way down on Baker Street, light in your head and dead on your feet . . ."  Sounds like an investing analogy to me.

[ni-co]

At least two of us are going to the Graham & Dodd breakfast on October 24th in NYC, so we'll see if we can sneak in a question or two.

 

This would be very nice, thanks!

[ni-co]

Btw. Berkowitz will be on Wealthtrack next weekend. I'm curious what he's got to say (if he provides any comment on SHLD at all).

 

Probably the same thing he's been saying for years, that the value is multiples of the current price and that he's been adding every single quarter.

 

In prior years he talked about Sears making a whole lot of money from appliance sales... he said those sales were only temporarily depressed by the housing market.

 

Well, he's been proved dead wrong but he hasn't admitted to it.  Instead, he just talks about future positive things that can't yet be proved wrong.

 

He also keeps repeating the same estimate of NAV per share (or thereabouts) every time he talks about it. And yet, at least using any reasonable assumptions, NAV has been declining for 3+ years due to the extent of the cash burn since 2011. But if you asked him today he'd probably say NAV is still $150/share. I'd love for him to admit that maybe NAV is $100 or $125 now. It's not like it would change his thesis with the stock at $27.

 

I agree on that one too. He dumbs things down too much. In principle, this is my line of thinking: Cash burn in relation to NAV is what matters.

[wisdom]

Could it be that real estate prices have also been rising as SHLD incurs losses - are we looking at just losses and not at the increase in RE.

[davidoosnk]

I got out of 90% of my SHLD exposure. Believe it or not, sold some longterm bitcoin gains to offset the loss.

 

This one has been a lesson in humility and brought me back to earth. But in the interim, I have really enjoyed everyone's comments including those with whom I disagreed.

 

I don't like getting out of an investment during a panic (that should be when one gets in an investment), but my decision was mainly influenced by (like someone here stated prior) the fact that if a Sears Canada sale were imminent, this loan would not have been made. I also thought the loan terms were not so great and several potential black swans that are even scarier than the cash burn are just to huge to ignore:

 

BLACK SWANS:

1) Berkowitz gets fed up and sells

2) Interest rates go up and the value of the real estate goes down.

3) Lampert finds a way to screw shareholders to his benefit. Or he's just nuts.

 

I still think on balance at this price it's worth the risk in a well balanced portfolio, and since I sold it will probably move up, but that's my take.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Luke 532]

but my decision was mainly influenced by (like someone here stated prior) the fact that if a Sears Canada sale were imminent, this loan would not have been made.

 

That's not true.  They want cash now for inventory for the holiday season.  If a Canada deal closes a month from now those proceeds wouldn't be received fast enough to purchase inventory needed now for the holiday season.

[peridotcapital]

Could it be that real estate prices have also been rising as SHLD incurs losses - are we looking at just losses and not at the increase in RE.

 

No, if you study the real estate closely (using county appraisals and stores that have been sold outright) you'll see that much of it is steady or even losing value. The crown jewels are rising but not at a rate that would make a huge dent in the value destruction (generally, real estate appreciation tends to track inflation long term, so you are breaking even from a purchasing power perspective).

[davidoosnk]

but my decision was mainly influenced by (like someone here stated prior) the fact that if a Sears Canada sale were imminent, this loan would not have been made.

 

That's not true.  They want cash now for inventory for the holiday season.  If a Canada deal closes a month from now those proceeds wouldn't be received fast enough to purchase inventory needed now for the holiday season.

 

I agree Luke, it could still happen. Especially if someone finds a way to make money in some exotic manner on some derivatives or stock spec or something. But to me imminent means within the next two months, and I just don't see that happening (though could be wrong).

[Luke 532]

but my decision was mainly influenced by (like someone here stated prior) the fact that if a Sears Canada sale were imminent, this loan would not have been made.

 

That's not true.  They want cash now for inventory for the holiday season.  If a Canada deal closes a month from now those proceeds wouldn't be received fast enough to purchase inventory needed now for the holiday season.

 

I agree Luke, it could still happen. Especially if someone finds a way to make money in some exotic manner on some derivatives or stock spec or something. But to me imminent means within the next two months, and I just don't see that happening (though could be wrong).

 

I guess that's where our investment approach differs.  I don't expect/require catalysts within 2 months to justify an investment.

[Picasso]

but my decision was mainly influenced by (like someone here stated prior) the fact that if a Sears Canada sale were imminent, this loan would not have been made.

 

That's not true.  They want cash now for inventory for the holiday season.  If a Canada deal closes a month from now those proceeds wouldn't be received fast enough to purchase inventory needed now for the holiday season.

 

I agree Luke, it could still happen. Especially if someone finds a way to make money in some exotic manner on some derivatives or stock spec or something. But to me imminent means within the next two months, and I just don't see that happening (though could be wrong).

 

I guess that's where our investment approach differs.  I don't expect/require catalysts within 2 months to justify an investment.

 

I wouldn't define the sale of SCC as a catalyst. It was necessary to keep the business running through the holiday season. Big difference.

[20ppy]

Could it be that real estate prices have also been rising as SHLD incurs losses - are we looking at just losses and not at the increase in RE.

 

No, if you study the real estate closely (using county appraisals and stores that have been sold outright) you'll see that much of it is steady or even losing value. The crown jewels are rising but not at a rate that would make a huge dent in the value destruction (generally, real estate appreciation tends to track inflation long term, so you are breaking even from a purchasing power perspective).

 

So, RE value has not advanced in the last 3 years according to your study.

[peridotcapital]

Could it be that real estate prices have also been rising as SHLD incurs losses - are we looking at just losses and not at the increase in RE.

 

No, if you study the real estate closely (using county appraisals and stores that have been sold outright) you'll see that much of it is steady or even losing value. The crown jewels are rising but not at a rate that would make a huge dent in the value destruction (generally, real estate appreciation tends to track inflation long term, so you are breaking even from a purchasing power perspective).

 

So, RE value has not advanced in the last 3 years according to your study.

 

It depends on which properties you are looking at. A third of the stores they own are Kmarts. Most of those are going down in value or treading water. The best Sears properties are rising in value, but even in those cases you are talking about mid single digits at best because mall traffic is declining. And then there are plenty of Sears stores that look more like Kmarts in terms of real estate fundamentals (supply/demand of the area, vacancy rates, traffic decline, etc).

 

Let's throw out some numbers as an example. Let's say you value SHLD's owned RE at 100/sf or $8.5 billion. Let's assume cash burn is $1 billion per year. In order for the RE inflation to completely offset the cash burn, the RE portfolio would have to appreciate by 12% per year. That's impossible. Even if you want to assume the RE is rising by 3% annually across the entire portfolio, on average, the cash burn is impairing NAV significantly.

 

My issue with Berkowitz is that he ignores the losses and insists NAV is unchanged no matter what the financial results at SHLD look like. If I was investing in SHLD because of him, I would wonder if maybe he has been missing something here. And if you look at his track record (he's owned it for 9 years now), it appears that is the case.

[wisdom]

Back in 2010 or so he had put a value of $90 and said it had declined - this was during a session in Florida. He has again started using the $150 recently.

[dbuch]

Don't know if this was posted yet

http://blog.searsholdings.com/leadership-viewpoint/setting-the-record-straight-just-the-facts/

[randomep]

Could it be that real estate prices have also been rising as SHLD incurs losses - are we looking at just losses and not at the increase in RE.

 

No, if you study the real estate closely (using county appraisals and stores that have been sold outright) you'll see that much of it is steady or even losing value. The crown jewels are rising but not at a rate that would make a huge dent in the value destruction (generally, real estate appreciation tends to track inflation long term, so you are breaking even from a purchasing power perspective).

 

So, RE value has not advanced in the last 3 years according to your study.

 

It depends on which properties you are looking at. A third of the stores they own are Kmarts. Most of those are going down in value or treading water. The best Sears properties are rising in value, but even in those cases you are talking about mid single digits at best because mall traffic is declining. And then there are plenty of Sears stores that look more like Kmarts in terms of real estate fundamentals (supply/demand of the area, vacancy rates, traffic decline, etc).

 

Let's throw out some numbers as an example. Let's say you value SHLD's owned RE at 100/sf or $8.5 billion. Let's assume cash burn is $1 billion per year. In order for the RE inflation to completely offset the cash burn, the RE portfolio would have to appreciate by 12% per year. That's impossible. Even if you want to assume the RE is rising by 3% annually across the entire portfolio, on average, the cash burn is impairing NAV significantly.

 

My issue with Berkowitz is that he ignores the losses and insists NAV is unchanged no matter what the financial results at SHLD look like. If I was investing in SHLD because of him, I would wonder if maybe he has been missing something here. And if you look at his track record (he's owned it for 9 years now), it appears that is the case.

 

Pardon me for probably repeating an old question, using this figure of $8.5 bil, how much is this greater than the current SHLD book value?

 

[Mephistopheles]

Pardon me for probably repeating an old question, using this figure of $8.5 bil, how much is this greater than the current SHLD book value?

 

 

On that note, the EV is now $8.6 billion, including the market cap, debt, and pension. I didn't adjust for the consolidated SCC stake, so it's not completely accurate.

 

So for $8.6 billion you get the Real Estate, KCD, Home Services, Warranty, Auto Center, and Net Inventories.

 

Net Inventories are $3.9 billion and KCD IP, LLC is valued at $1.8 billion, so that leaves $2.9 billion for the rest. If we assume $5 billion in future cash burn, then that is $8 billion for RE, Home Services, Warranty, and Auto Center, which seems reasonable.

 

I don't have a position, but it's looking more and more attractive.

 

What I don't like is management, I feel like they aren't straightforward and honest (for example, Eddie with the way he touts SYW, and the CFO in the latest blog post implying they did much better than JCP with the effective rate).

 

So I think it would have to drop a bit more before I feel comfortable.

 

Edited: For a blunder

[Luke 532]

and the CFO in the latest blog post excluding the upfront 1.75% fee).

 

???

 

"Our $400 million loan has an interest rate of 5 percent and an upfront fee of 175 base points,..."

http://blog.searsholdings.com/leadership-viewpoint/setting-the-record-straight-just-the-facts/