SHLDQ - Sears Holdings Corp

[compoundinglife]

The biggest factor here IMO with regards to margin of safety is the value of the real estate. I have read 16 billion, "at least $80 a share" and of BB's comparison of Sear's total Sq. footage vs that of Simon. So summoning Howard Marks (watched the interview recently), what do we know that the market doesn't about SHLD's real estate? Nothing. What is our second level of thinking that makes us confident that the market is wrong and we are right?

 

So for most of us I think this boils down to a few things:

 

1. Smart Investors whom most of us respect have indicated the real estate is worth considerably more than the EV of 7.8B

 

2. ESL has a great long term investing track record. I think anyone on this board who is long SHLD believes he will be able to eventually monetize assets and either return capital to share holders or deploy it in attractive investments.

 

3. We understand the balance sheet and realize that SHLD is not widely followed, has a small float, most analysts that do bother to report on it focus on retail sales and compare it to BBY or other retailers overlooking the sum of parts value.

 

So the question I have been asking myself is "Is this really second level thinking?". Is it just that my temperament and personality is well suited for these situations and I am able to tune out the noise and look at the facts? Or am I missing something others see?

 

I keep coming back to the one wildcard which for me is the value of the real estate. I have been following the saga for quite a while and jumped in at the lows of late 2011/early 2012, I felt like it was very much a "I don't have to know a man's weight to know he is fat" scenario. But this is mainly based on estimates from BB and hints that ESL has dropped. They have demonstrated a little by selling some properties. But really for the most part I feel we are going off of what we have read or heard from people that we respect and are deserving of respect.

 

So where I am going with this? I have really wanted to pull the trigger on SHLD in a big way when the price gets down but in order to do that I need to be able to back up the real estate value thesis. It is currently a 2% position that I would probably go 5 to 10 on if I could assert some estimation of the MOS provided by the real estate. So I purchased a database of all their US locations with approximate co-ordinates, addresses, phone numbers, type of store (sears, hometown etc...). It has about 3100 locations, some of which were spun off already or sold.

 

The question is how does one go about efficiently taking this list and getting reasonable estimates of value? Is this something that a group of people could tackle and quickly knock out in a week or two? Is that something that SHLD junkies on the board would be interested in doing?

 

I would like to know at least the following about each:

 

1. Lease or Own

2. How big is the store

3. If lease, what is the remaining time

4. What is the current rate in that market per sq. ft for renting or purchasing

 

I could go on but that is a good starting point. Internet research and cold calling the stores are the first things that come to mind. But 3000 is a large #.

 

If folks are interested enough crowd sourcing this or even have good ideas for getting this information I am all ears. I have usually done all my own research on investments so I am not sure if this information is already available for a reasonable cost somewhere.

 

 

 

[giofranchi]

Gio - Is SHLD in retail or is it that some of it's subsidiaries are? We are not talking of Sears Roebuck here but Sears Holdings. I find too often people think them to be one and the same. Is BRK in retail because it own's NFM?

 

From SHLD - 10k

 

Sears Holdings Corporation (“Holdings,” “we,” “us,” “our,” or the “Company”) is the parent company of Kmart Holding Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”). Holdings was formed as a Delaware corporation in 2004 in connection with the merger of Kmart and Sears (the “Merger”) on March 24, 2005. We are a broadline retailer with 2,201 full-line and 1,354 specialty retail stores in the United States operating through Kmart and Sears and 483 full-line and specialty retail stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 92%-owned subsidiary.

 

This is why I believe that the probability of failure at the holding company level to be lower than the retail business - let me know if my thinking is wrong.

 

wisdom,

I tend to think about a business in terms of “platform”. In my view a high quality platform combines two things together:

1) a machine that generate lots of reliable free cash,

2) a machine that reliably compounds that free cash at satisfactory rates of return.

For instance, I view my firm’s platform as follows:

1) civil engineering services and for profit education generate free cash: not very good, because margins are low and predictability is low  :(

2) I allocate my firm’s free cash as best as I can: not very good, but, believe me, my partners would most probably do an even worse job! So, not many other choices…  ;D

If 1) is not very good and 2) is not very good, imo it follows that the platform is not very good.

Now, what about SHLD? Well, my idea is that SHLD has a wonderful 2), but a not very good 1). Average “wonderful” and “not very good” and what you get is “fair” at least, “good” at best. But I would be hard pressed to say “great”.

Of course, you may say I misjudged the quantity and the reliability of the free cash generated by 1) in SHLD. And I admit I have never dug deep into SHLD, so you might very well be right!

 

giofranchi

[FCharlie]

 

The question is how does one go about efficiently taking this list and getting reasonable estimates of value? Is this something that a group of people could tackle and quickly knock out in a week or two? Is that something that SHLD junkies on the board would be interested in doing?

 

I would like to know at least the following about each:

 

1. Lease or Own

2. How big is the store

3. If lease, what is the remaining time

4. What is the current rate in that market per sq. ft for renting or purchasing

 

I could go on but that is a good starting point. Internet research and cold calling the stores are the first things that come to mind. But 3000 is a large #.

 

If folks are interested enough crowd sourcing this or even have good ideas for getting this information I am all ears. I have usually done all my own research on investments so I am not sure if this information is already available for a reasonable cost somewhere.

 

 

A few years back I tried to do exactly this on a smaller scale, with the idea that if I selected at random, at least I'd get a sense of what values were on average.

 

I simply searched the SHLD website for locations, then found the county websites of those stores, searched real estate tax values online, and eventually had compiled a list of values for stores everywhere from Florida, North Carolina, Colorado, Alaska.

 

I found assessed values (not necessarily current appraised values) ranging between $6 million for a store in Charlotte North Carolina to $25 million for a store in Anchorage, Alaska.

 

Somewhere in the middle I remember finding stores averaging $7-12 million each. There were in Miami, Florida, Raleigh, North Carolina, Denver, Colorado. There were also distribution centers that appeared to be quite valuable.

 

That said, this is a game where the pieces are moving. Real Estate values can change, and the shares outstanding can change. At the time Bruce Berkowitz first named his "conservative estimate" of $80-90 per share on Real Estate... SHLD had shares outstanding about 125 million. Today the number is 106 million so even assuming a 15% decline in values, the per share number would still be $80-90 per share.

 

I met Mr. Lampert at a shareholders meeting a few years back and I personally thanked him for not suspending share repurchases during the financial crisis the way that nearly everyone else had done. In fact, when I mentioned how SHLD had repurchased over 10% of it's share count at half of book value his instant response was "We wish we'd have bought more."

 

That confidence combined with Berkowitz confidence is the margin of safety that I fall back on. Let's not forget that the inventory alone gets you the stock price. SHLD is cheap. Dirt cheap. Wall Street doesn't have the patience to wait for the turnaround here.

 

I'd be happy to help with your project if you'd like.

 

 

[Kraven]

Let's not forget that the inventory alone gets you the stock price.

 

I have a question about this if you don't mind.  I've looked a little, not a lot, at Sears and this is a point that others have made here, Berkowitz has made, etc.  I don't understand it at all.  What does it mean to say that inventory is worth the stock price?  I mean obviously inventory less all liabilities is a negative.  Some people say inventory less accounts payable.  I just don't understand the metrics.  I don't see how ignoring liabilities makes sense.  Could you please explain?

[ShahKhezri]

Let's not forget that the inventory alone gets you the stock price.

 

I have a question about this if you don't mind.  I've looked a little, not a lot, at Sears and this is a point that others have made here, Berkowitz has made, etc.  I don't understand it at all.  What does it mean to say that inventory is worth the stock price?  I mean obviously inventory less all liabilities is a negative.  Some people say inventory less accounts payable.  I just don't understand the metrics.  I don't see how ignoring liabilities makes sense.  Could you please explain?

 

Kraven, personally I'm not looking at the inventory for equity support.  Per the credit agreement, using 90% A/R, 65% Inventory I use it to support all of their RLOC (1st lien) and the $1.25Bn 6.625% (2nd lien) and payables. 

 

 

[Grenville]

Not to mess with the thread – hey, I am watching SHLD too – but I don't remember seeing this Buffett opinion shared.

 

http://www.fool.com/community/pod/2005/050713.htm

 

 

Nice notes. Thanks for posting.

[FCharlie]

Let's not forget that the inventory alone gets you the stock price.

 

I have a question about this if you don't mind.  I've looked a little, not a lot, at Sears and this is a point that others have made here, Berkowitz has made, etc.  I don't understand it at all.  What does it mean to say that inventory is worth the stock price?  I mean obviously inventory less all liabilities is a negative.  Some people say inventory less accounts payable.  I just don't understand the metrics.  I don't see how ignoring liabilities makes sense.  Could you please explain?

 

Hello, Kraven.

 

My point is that if you add up inventory and subtract for payables, you end up with a value greater than market value. This isn't to say that net inventory covers all liabilities, but obviously net inventory isn't the only asset here.... Apologies if I made it seem too basic.... This is simply one more piece of data which doesn't make sense when you view all the other assets that go with it. Someone earlier said they don't need to know someone's exact weight to know that they are fat. Warren Buffett said that you shouldn't have to do all kinds of calculations to know that something is cheap... that the value should just scream at you..... To me, if it costs less to purchase the entire company than it costs to purchase everything they offer for sale, that seems like the business is being left for dead.

 

I think Berkowitz has a tendency to make things too simple, and perhaps I am doing the same... He probably could speak for hours about the work he's done here but when he's asked, he simply reminds people that the value of the parts are multiples of the stock price. I could speak for hours about the discussions I've had with people, the stores I've been in, the annual meetings I've been to, the 10Q's & K's, but really it boils down to the assets appear to be worth much, much more than the stock price, and two of my favorite investors on earth are the largest two owners here.

 

 

[nsa122]

Have been curious about the real estate value for a while, would be happy to help.  Can you post your list of locations to a Google Docs spreadsheet? We can come up with a consensus method of valuation (county appraisal district appraised value?) and go to work.  A brief search on the Bexar County Appraisal District (San Antonio) listed 16 locations, ~$50M appraised value.  I don't know the relationship of the appraised tax value to realistic market value (anyone?).  3000 locations seems like a very doable task.

[racemize]

Have been curious about the real estate value for a while, would be happy to help.  Can you post your list of locations to a Google Docs spreadsheet? We can come up with a consensus method of valuation (county appraisal district appraised value?) and go to work.  A brief search on the Bexar County Appraisal District (San Antonio) listed 16 locations, ~$50M appraised value.  I don't know the relationship of the appraised tax value to realistic market value (anyone?).  3000 locations seems like a very doable task.

 

Crowd Sourced Valuation--seems like a great idea.

[oddballstocks]

Let's not forget that the inventory alone gets you the stock price.

 

I have a question about this if you don't mind.  I've looked a little, not a lot, at Sears and this is a point that others have made here, Berkowitz has made, etc.  I don't understand it at all.  What does it mean to say that inventory is worth the stock price?  I mean obviously inventory less all liabilities is a negative.  Some people say inventory less accounts payable.  I just don't understand the metrics.  I don't see how ignoring liabilities makes sense.  Could you please explain?

 

Hello, Kraven.

 

My point is that if you add up inventory and subtract for payables, you end up with a value greater than market value. This isn't to say that net inventory covers all liabilities, but obviously net inventory isn't the only asset here.... Apologies if I made it seem too basic.... This is simply one more piece of data which doesn't make sense when you view all the other assets that go with it. Someone earlier said they don't need to know someone's exact weight to know that they are fat. Warren Buffett said that you shouldn't have to do all kinds of calculations to know that something is cheap... that the value should just scream at you..... To me, if it costs less to purchase the entire company than it costs to purchase everything they offer for sale, that seems like the business is being left for dead.

 

I think Berkowitz has a tendency to make things too simple, and perhaps I am doing the same... He probably could speak for hours about the work he's done here but when he's asked, he simply reminds people that the value of the parts are multiples of the stock price. I could speak for hours about the discussions I've had with people, the stores I've been in, the annual meetings I've been to, the 10Q's & K's, but really it boils down to the assets appear to be worth much, much more than the stock price, and two of my favorite investors on earth are the largest two owners here.

 

I'm stuck on this inventory thing too.  To be upfront I'm more of an asset investor myself, I do a lot of net-nets, low P/B type of situations.  With that said I'm always wary of inventory values, the inventory only has a full value if the company itself can continue to sell it, or if it's easily resalable.

 

In the Sears case their inventory is easily liquidated, but I don't think you'd get full value.  The cool thing is there is a very reliable proxy for value, which would be what a discounter like TJ Maxx or Gabriels could sell the stuff for, that's usually where this inventory would end up.

 

So if I understand you correctly, you're saying the value if the inventory minus all payables (net inventory) is greater than the market value of the company minus inventory?  Correct?  Or are you saying that the market value of the company is equal to the net inventory value which means the market is giving the company no credit for real estate and whatever grab bag of stuff they have left over.

 

So here's my grand question on Sears.  Clearly the retail is not the best path forward, they've lost mind-share and it's not coming back.  The general thesis seems to be that they have valuable real estate and brands.  So why not license the brands to other stores or spin them off.  Then sell down the inventory and sell off the real estate.  People state they're in a slow motion liquidation, but they're going so slow they're letting the operations destroy whatever value is left.  I don't know how many times they turn their inventory but in theory they could probably clear the shelves in a few months at most.  At that point all that inventory cash could be freed up for Lampert to reinvest at his higher rates instead of sinking it back into the stores.

 

Then the real estate could be sold down and that cash redeployed.  It's possible they're doing this at a glacial pace.  The Kmart we've been in near us (terrible location by the way) has half empty shelves already, so maybe they're already doing it.  I can't tell the difference between neglect and a well orchestrated slow motion liquidation though.

 

I wonder aloud, and I think I did earlier in this thread who's going to take over the real estate?  The locations I've seen for Kmart aren't all that great.  Sears is usually in a decent mall, so I figure someone might be able to fill it, but these are big spaces, and brick and mortar retail isn't exactly experiencing a boom right now.  Near us a Circuit City went out of business and was replaced by a Ross, I'm going to wager that Ross is paying less than Circuit City, but it's just a guess.  Not many chains are expanding right now.

 

Just some general thoughts.  I'm not trying to bash Sears, this seems like a great investment, but I just can't get over the hump with these questions.

[fareastwarriors]

http://www.mevsemt.blogspot.com/

 

Our fellow member added to SHLD.

 

 

[txlaw]

So the question I have been asking myself is "Is this really second level thinking?". Is it just that my temperament and personality is well suited for these situations and I am able to tune out the noise and look at the facts? Or am I missing something others see?

 

I think with respect to the RE value, most of us are indeed going off of the ranges espoused by various investors, most notably Bruce Berkowitz.

 

However, there are additional factors that make RE not the only story with respect to MOS, factors which the market is indeed overlooking.

 

First, there is the strategy component that is being put into place to maintain and grow the intangible assets -- SHLD IP (KCD, Land's End, HomeServices, PartsDirect), appliance tool market share, and existing vendor and customer relationships.  This, IMO, is not being factored in at all by the market, as it is associated with an asset-lite or good co/bad co point of view that the Mr. Market has problems analyzing.

 

Second, some board members will recall that, a while back, Sanjeev posted some hints on SHLD from one of his friends that focuses on the organizational structure of SHLD.  Going through the exercise of tearing that apart is not a trivial one, and the market simply hasn't done the homework in that regard.  IMO, doing that analysis helps explain why Bruce B thinks that SHLD is worth a multiple of the current market cap.

 

Finally, I would note that I think it is the case that, here, temperament absolutely matters.  Even if you spoon fed Mr. Market with all this info, this would probably not have a real effect on the price.

[racemize]

 

I wonder aloud, and I think I did earlier in this thread who's going to take over the real estate?  The locations I've seen for Kmart aren't all that great.  Sears is usually in a decent mall, so I figure someone might be able to fill it, but these are big spaces, and brick and mortar retail isn't exactly experiencing a boom right now.  Near us a Circuit City went out of business and was replaced by a Ross, I'm going to wager that Ross is paying less than Circuit City, but it's just a guess.  Not many chains are expanding right now.

 

 

I similarly share concerns re: Kmart stores.  Also, as you hint, who is the new anchor that is going to step up and fill in a Sears position?  Aren't all the anchors typically already there?

[FCharlie]

 

 

I'm stuck on this inventory thing too.  To be upfront I'm more of an asset investor myself, I do a lot of net-nets, low P/B type of situations.  With that said I'm always wary of inventory values, the inventory only has a full value if the company itself can continue to sell it, or if it's easily resalable.

 

In the Sears case their inventory is easily liquidated, but I don't think you'd get full value.  The cool thing is there is a very reliable proxy for value, which would be what a discounter like TJ Maxx or Gabriels could sell the stuff for, that's usually where this inventory would end up.

 

So if I understand you correctly, you're saying the value if the inventory minus all payables (net inventory) is greater than the market value of the company minus inventory?  Correct?  Or are you saying that the market value of the company is equal to the net inventory value which means the market is giving the company no credit for real estate and whatever grab bag of stuff they have left over.

 

 

 

Sears market cap is $4.5 billion.  Net inventory is greater than $4.5 billion

 

I have heard over the years that inventory isn't a useful number because in a liquidation you can't get full price.... However, inventory is held on the books at the lower of cost or market.

 

If you go back to the conference call last Feb, Lou'D, the CEO, said that even when closing stores, they "ALWAYS ARE ABLE TO SELL INVENTORY FOR MORE THAN THEY PAID FOR IT"

 

So, knowing those two pieces of information, I'd say it's reasonable to assume the inventory is worth what the books say it's worth... and if that's the case, then you could buy the entire company for less dollars than you could buy all of their washers/dryers/ fridges/ socks/ jewelery, etc.... And if that's the case, then assuming the retail business is capable of funding the pension as they wind it down, the real estate is all gravy.

 

 

[txlaw]

So here's my grand question on Sears.  Clearly the retail is not the best path forward, they've lost mind-share and it's not coming back.  The general thesis seems to be that they have valuable real estate and brands.  So why not license the brands to other stores or spin them off.  Then sell down the inventory and sell off the real estate.  People state they're in a slow motion liquidation, but they're going so slow they're letting the operations destroy whatever value is left.  I don't know how many times they turn their inventory but in theory they could probably clear the shelves in a few months at most.  At that point all that inventory cash could be freed up for Lampert to reinvest at his higher rates instead of sinking it back into the stores.

 

Then the real estate could be sold down and that cash redeployed.  It's possible they're doing this at a glacial pace.  The Kmart we've been in near us (terrible location by the way) has half empty shelves already, so maybe they're already doing it.  I can't tell the difference between neglect and a well orchestrated slow motion liquidation though.

 

"Clearly the retail is not the best path forward, they've lost mind-share and it's not coming back."

 

IMO, this is a big part of what the Street is missing. 

 

It would be incredibly foolish for Sears to just give away their dominance in appliances and tools.  Take a look at Sears Hometown.  They are opening stores and their same store sales are up.  Moreover, there is a big push for integrated retail that is intended to make Sears the go-to place for appliances and tools, regardless of which channel one uses to buy (Internet, Sears mall stores, Sears Hometown, or other hardware stores such as ACE).

 

Instead, the smarter plan -- one that ESL has put into place -- is to transform into an asset-lite model over time and to slowly move the "store" base from the mall and big box formats to a smaller store and Internet presence.  Then, ESL can monetize the Sears RE (both owned and leased).

 

As for Kmart, the locations that are not closed still generate sales, which are sales that are taken away from their competitors.  I personally think that there are better uses for Kmart locations, such as Walmarts, Targets, Costcos, Dollar Trees, or any number of alternative stores.

 

I wonder aloud, and I think I did earlier in this thread who's going to take over the real estate?  The locations I've seen for Kmart aren't all that great.  Sears is usually in a decent mall, so I figure someone might be able to fill it, but these are big spaces, and brick and mortar retail isn't exactly experiencing a boom right now.  Near us a Circuit City went out of business and was replaced by a Ross, I'm going to wager that Ross is paying less than Circuit City, but it's just a guess.  Not many chains are expanding right now.

 

Take a look at the "SHLD anyone?" thread.  There has been a lot of discussion about this over there.

[BargainValueHunter]

Is the sum-of-the-parts valuation of Ackman's JCP thesis as discounted as Berkowitz's SHLD thesis?

[Kraven]

Let's not forget that the inventory alone gets you the stock price.

 

I have a question about this if you don't mind.  I've looked a little, not a lot, at Sears and this is a point that others have made here, Berkowitz has made, etc.  I don't understand it at all.  What does it mean to say that inventory is worth the stock price?  I mean obviously inventory less all liabilities is a negative.  Some people say inventory less accounts payable.  I just don't understand the metrics.  I don't see how ignoring liabilities makes sense.  Could you please explain?

 

Hello, Kraven.

 

My point is that if you add up inventory and subtract for payables, you end up with a value greater than market value. This isn't to say that net inventory covers all liabilities, but obviously net inventory isn't the only asset here.... Apologies if I made it seem too basic.... This is simply one more piece of data which doesn't make sense when you view all the other assets that go with it. Someone earlier said they don't need to know someone's exact weight to know that they are fat. Warren Buffett said that you shouldn't have to do all kinds of calculations to know that something is cheap... that the value should just scream at you..... To me, if it costs less to purchase the entire company than it costs to purchase everything they offer for sale, that seems like the business is being left for dead.

 

I think Berkowitz has a tendency to make things too simple, and perhaps I am doing the same... He probably could speak for hours about the work he's done here but when he's asked, he simply reminds people that the value of the parts are multiples of the stock price. I could speak for hours about the discussions I've had with people, the stores I've been in, the annual meetings I've been to, the 10Q's & K's, but really it boils down to the assets appear to be worth much, much more than the stock price, and two of my favorite investors on earth are the largest two owners here.

 

Thanks FCharlie.  I guess I should re-phrase my question a little.  I understand the point that net inventory (inventory less A/P) is the same as market value.  I don't understand though how that matters or even is relevant in a "sum of the parts" type valuation.  There are lots of companies where if you took some of their assets and either netted out a contra liabilities or whatever that it would be worth more than market value. 

 

For example, Dell's market cap is roughly $15 bil.  Well, cash and investments are over $14 bil.  So do we say that we can get Dell almost for free?  Just about any bank I've ever looked at (and I've looked at hundreds or even thousands) has more cash and investments than market cap. 

 

I really like Berkowitz and I like the way he drills down on investment ideas and summarizes them into their core points.  But he also says for example that AIG has more cash than market cap.  So I guess we ignore all the liabilities?  It's the same point as the banks I mentioned, Dell, etc.

 

I am trying to understand the thesis.  I am sure I am missing something, so just having a discussion.  I would be grateful if you or someone else can explain to me how this actually means Sears is cheap.  Thanks much.

[Guest rimm_never_sleeps]

the street gets ESL strategy. they want him to move quicker in transforming it. because if you are an index hugging institutional investor, without any earnings nor prospects for any from operations, there is no reason to own this right now. and if you are the more adventurous sort, like the typical hedgie, eddie is probably moving too slowly to create value for you. that's why there are very few "fans" of the stock. cheers!

[txlaw]

the street gets ESL strategy. they want him to move quicker in transforming it. because there is no reason to own this right now, if you are an index hugging institutional investor without any earnings. and if you are the more adventurous sort, eddie is moving to slowly too create value for you. that's why there are very few "fans" of the stock. cheers!

 

On the contrary, ESL is preserving value for the common by moving slowly.

 

Perhaps you want ESL to move quickly to create value by purchasing your bonds?  Finance 101?

[FrankArabia]

i'm doubtful they can liquidate their inventory at stated values...........

 

i'm still not quite clear why Sears is value per se...i took a look at berkowitz presentation but all it looks like its saying is that it has a lot of real estate....but a lot of real estate doesn't translate to a lot of value

[Guest rimm_never_sleeps]

the street gets ESL strategy. they want him to move quicker in transforming it. because there is no reason to own this right now, if you are an index hugging institutional investor without any earnings. and if you are the more adventurous sort, eddie is moving to slowly too create value for you. that's why there are very few "fans" of the stock. cheers!

 

On the contrary, ESL is preserving value for the common by moving slowly.

 

Perhaps you want ESL to move quickly to create value by purchasing your bonds?  Finance 101?

 

that was my point actually. I did not say what I preferred. I said what the street preferred. that's why there is no sponsorship. I never said esl should move faster. in fact he may be trying to drain the swamp so he can transfer their shares to his pocket. I own the stock too. cheers!

[compoundinglife]

Have been curious about the real estate value for a while, would be happy to help.  Can you post your list of locations to a Google Docs spreadsheet? We can come up with a consensus method of valuation (county appraisal district appraised value?) and go to work.  A brief search on the Bexar County Appraisal District (San Antonio) listed 16 locations, ~$50M appraised value.  I don't know the relationship of the appraised tax value to realistic market value (anyone?).  3000 locations seems like a very doable task.

 

When I purchased the list I agreed to a EULA that said I would not make it available for wholesale download but could use it for business or for usage in an application. So if I post it on Google docs I will have to limit the access. I am more than happy to do that and then limit the access to folks on the board who are interested in doing the leg work and then we can report back to the board with our findings. I could even take the results and put it in a web page where you could search by zip code or store # to the see the values. The EULA said it was ok to use it for building apps or tools you just can't make it easy for the public to download the whole data set. While I think the likely hood of them being able to enforce that on data like this is low, I agreed to the terms and would like to keep my word.

 

One other idea I had was to make a web bot that just iterated over all the US zip codes and input them into the Sears store locator and download the results. If I did that then I could post the results online of the data I collected instead of the data I purchased.

 

Later today I will import it into google docs and folks interested in gathering the data can PM me. Sound good?

[LongHaul]

I am not invested in Sears and can't get to much of a liquidation value.

Curious what people think.  My rough analysis below.

 

I think the real estate (not based on any comprehensive analysis) is worth roughly the following:

 

~750 stores owned and assume about 150 have real value.

150 x $50m per store = $7.5b

Plus other stores, etc.= $0.5b

Total Real Estate Value=$8.0

 

Current Assets 10/27/12: $11.3b 

I have left Current Assets at book value which might be very optimistic.

 

Total Asset Value = $19.3b

 

Total Liab ~ $18b

 

Net: $1.3b

 

There is also big negative EBITDA - Maint Capex (-$400m in the most recent FY)

Plus there are Min lease payments that have ~ $4.7b liability in the most recent 10-K.

In addition I have completely left out present value calculations, taxes, and liquidation costs.

 

[compoundinglife]

So the question I have been asking myself is "Is this really second level thinking?". Is it just that my temperament and personality is well suited for these situations and I am able to tune out the noise and look at the facts? Or am I missing something others see?

 

I think with respect to the RE value, most of us are indeed going off of the ranges espoused by various investors, most notably Bruce Berkowitz.

 

However, there are additional factors that make RE not the only story with respect to MOS, factors which the market is indeed overlooking.

 

First, there is the strategy component that is being put into place to maintain and grow the intangible assets -- SHLD IP (KCD, Land's End, HomeServices, PartsDirect), appliance tool market share, and existing vendor and customer relationships.  This, IMO, is not being factored in at all by the market, as it is associated with an asset-lite or good co/bad co point of view that the Mr. Market has problems analyzing.

 

Second, some board members will recall that, a while back, Sanjeev posted some hints on SHLD from one of his friends that focuses on the organizational structure of SHLD.  Going through the exercise of tearing that apart is not a trivial one, and the market simply hasn't done the homework in that regard.  IMO, doing that analysis helps explain why Bruce B thinks that SHLD is worth a multiple of the current market cap.

 

Finally, I would note that I think it is the case that, here, temperament absolutely matters.  Even if you spoon fed Mr. Market with all this info, this would probably not have a real effect on the price.

 

I agree with everything you are saying here. I think the likely hood of bankruptcy is very low but it is still a possibility, so I would like to be able to assert with some confidence that if that happens there is enough MOS.

 

Cash:    754

Recv:    347 when valued at 50%

Invent: 5610 when valued at 66%

Other:    388 should probably discount this, but how much?

 

That is around 7B of current assets not including PPE.

 

So now we have liabilities of 17.1B

 

Other assets:

KCD  1.7B

Land's End: 1.5B (have read 1 to 1.5)

Sears Canada %50: 0.5B

Sears Reinsurance: Not sure off the top of my head isn't this mostly KCD holding?

 

Real Estate: ?

 

There are other things in there, but that is all I can remember without looking at my notes which are not with me ATM.

 

That gets us up to 10.5B with out RE and some other assets I may have forgotten. So in trying to close the 7 billion gap between what else needs to be in there? If RE is 16B then that gives us 26B which leaves approximately 9B left in liquidation, more than double todays market cap. Looking pretty good from a MOS perspective but the majority is based on RE and I would like to have some data that backs that up.

 

You could also argue I discounted the receivables and inventory too much, but that still doesn't change the fact that RE is the biggest factor in liquidation.

[Guest rimm_never_sleeps]

600 owned stores worth $500m? seems very random. and you don't include the hoffman estates properties.