SHLDQ - Sears Holdings Corp

[Against the crowd]

BT Shine....I agree....SSS over last 3 qtrs have been encouraging. Eddie was very bullish in his Q3 recorded conference call about performance further improving in Q4....Keeping fingers crossed.

[BTShine]

BT Shine....I agree....SSS over last 3 qtrs have been encouraging. Eddie was very bullish in his Q3 recorded conference call about performance further improving in Q4....Keeping fingers crossed.

 

Yeah, he does seem to be more confident and satisfied with the progress they're making (some may argue it's not progress, and that's a fair argument). 

 

Wish I knew what to expect out of this quarter.  I'm cautiously optimistic, but that's been the case in quarters past and things haven't gone as well as expected. 

 

I do think the ShopYourWay platform has created a better relationship with customers where they're now more open to communication/advertising.  Particularly in the emails sent by SYW (because they might contain free points, etc, etc. customers open the emails more often-- it's psychology 101)  This improved relationship should create a more sticky customer, which I think will allow SHLD to spend less on traditional marketing and employee costs (the customers will put up with longer lines and less assistance in store).  We saw yesterday that SHLD is reducing headcount by 115 at corporate.  I'd bet they're also planning to reduce worker hours in store.

 

On another note I found this interesting.  http://www.searchmetrics.com/news-and-events/walmart-sears-among-top-retail-stores-facebook-research-says/#.VMqV87phJr0.twitter

 

[gr33ngi4nt]

On another note I found this interesting.  http://www.searchmetrics.com/news-and-events/walmart-sears-among-top-retail-stores-facebook-research-says/#.VMqV87phJr0.twitter

 

I would be somewhat skeptical of these numbers. These metrics on Facebook can be purchased for pretty small sums. Same can be said about instagram.

[Against the crowd]

I agree metrics can be bought at one site.....When the data converges from multiple sources then it provides meaningful insight......Somebody ( i can't remember) used to post numbers from Alexia on this forum. It will be interesting to see Alexia numbers for sears. com, shopyourway.com and kmart.com for last 3 months. That will provide interesting insight.

[Guest ajc]

 

 

 

"Market participants have often failed to ascribe appropriate intrinsic value to conglomerates, and Sears Holdings Corporation (“SHC”, 7.1%) is no exception. For years, SHC has remained a misunderstood sum-of-parts story.

Few have the inclination to examine all of the company’s pieces, which equate to a net asset value that we estimate to be multiples of current market prices.

 

SHC’s substantial portfolio of real estate is its most valuable component.

The company’s 977 Kmart and 714 Sears properties total 195 million square feet of commercial retail space – more than Simon Property Group, the largest mall REIT with an enterprise value of $100 billion. The possibilities for SHC’s owned and leased properties are endless.

Redevelopment is one feasible option that the company is actively pursuing, including: the transformation of its 162,000 square foot store at Janss Marketplace (Thousand Oaks, CA) into a mini-mall; the reorganization of a 14-acre site in St. Paul, Minnesota, with 111,000 square feet in adjacent structures including 130 units of housing; and the redevelopment of a 12.3-acre property at top-performing Aventura Mall in Florida into 251,250 square feet of highend open-air retail and restaurant space, 43,802 square feet of office space, 128,737 square feet for a luxury hotel with 120 rooms, and 476,297 square feet of parking.

At this proposed “Esplanade at Aventura,” Sears would retain a 20,000 square foot presence, effectively reducing its footprint by 90%. Subleasing to single and multiple tenants is another option: millions of square feet have already been subleased to tenants such as Ansar Gallery International, Dick’s Sporting Goods, Kroger, Nordstrom Rack, Primark, and Whole Foods.

Finally, some stores will remain as-is: for example, “cash cow” locations throughout the Northeast corridor, Puerto Rico, and the U.S. Virgin Islands do not require any reconfiguration.

 

We believe that the company’s non-real estate assets have significant value as well.

SHC’s $5.6 billion in cash, receivables, and net inventory (or $44 per diluted SHC common share), leading brands (e.g., Kenmore, Craftsman, and DieHard), and Shop Your Way loyalty program (which has helped the company generate $4 billion in online sales) are important components.2 SHC also operates 750+ pharmacies with $1.75 billion in annual sales. Sears Home Services is the largest national delivery and home repair service with over $2.5 billion in sales.

Annual service repair calls exceed nine million, in addition to 4 million deliveries and 1 million installations. Sears Commerce Services provides e-commerce and logistics solutions for third-party businesses, akin to Amazon Services. Sears Logistics has 49 distribution and fulfillment facilities across the U.S. (46.5 million square feet) providing end-to-end supply chain solutions for SHC and competitors. Sears Protection Company has over 15 million products under protection agreement contracts. Sears Reinsurance Company provides management of all insurance risks. And there is more.

 

We believe that SHC’s liabilities are easily offset by its non-real estate assets. Proceeds from recent and anticipated corporate actions as well as further inventory reductions would re-pay the: (i) $400 million in short-term debt due February 2015; (ii) $1.6 billion from the domestic credit facility expiring April 2016; (iii) $1.0 billion term loan due June 2018; and (iv) remaining pension plan obligations forecasted

to be $1.1 billion through 2019 at prevailing low rates.

 

SHC’s management acknowledges that operating performance must improve, and we remain confident that the company has the ability to effectively address its cash burn by reducing:

 

(i) investments in integrated retail and Shop Your Way;

(ii) the dual marketing program spend;

(iii) rent and associated costs;

(iv) corporate overhead; and

(v) the pension deficit.

 

The company indicated that it is “currently carrying costs of two promotional programs: [shop Your Way] Points and Promotional Markdowns (‘PMDs’)” and intends to expedite the transition from PMDs to Points for a “more efficient promotional model.” SHC is also accelerating unprofitable store closings, and can terminate approximately 80% of existing leases without penalty over the next four years by not exercising its extension options.

Retail analysts predictably focus on “revenue per square foot” and “same store sales.” We prefer to ignore the crowd by assessing all the parts. Consider this: at one point last year, the market cap of newly independent Lands’ End almost rivaled the market cap of its former parent, SHC.

 

 

 

(Fairholme Fund Annual Report, January 2015)

 

 

 

[Luke 532]

Friday: Sears Holdings Announces Willow Grove Park Mall Store Location Included In Primark Lease Agreement

http://searsholdings.mediaroom.com/index.php?s=16310&item=137347

 

Today: Sears Holdings Announces Danbury Fair And Freehold Raceway Mall Included In Primark Lease Agreement

http://searsholdings.mediaroom.com/index.php?s=16310&item=137348

[jeffmori7]

The fall and overhaul of the american mall: http://www.washingtonpost.com/business/capitalbusiness/the-fall--and-overhaul--of-the-american-mall/2015/01/30/cf9f05f4-a650-11e4-a7c2-03d37af98440_story.html

 

A good quote about the anchor stores:

 

Tom Fitzpatrick of the developer Greenberg Gibbons had disagreements with anchor stores when he was redeveloping the former Laurel Mall. “They didn’t really have any motivation other than to get a huge termination fee,” he said. “They do this pretty much all over the country where they control the real estate and can hold up the developer until they get what they want.”

[Against the crowd]

Did anyone notice the mention of $4B in online sales in Fairhome's annual report. I wonder if it is pure online or whether it is multi-channel sales. Curious to know what people think about this number. It will be also interesting to see if anybody has any data point on what margins they are making on this $4B

[adesigar]

Whats up with the Sears 8% bonds? I just sold the bonds at Par (actually 99.something) + accumulated interest.

[Scudbucket]

Anyone going to the annual meeting this year?

[Luke 532]

Quick question for the board: do you loan out your SHLD shares?  Why or why not?

 

For those that do loan them out, did you experience any difficulties or problems during the recent rights offering or during the LE spin-off?  I'm just curious as I would imagine some brokers were confused by all the financial engineering and perhaps that impacted the lending market in some way, shape, or form.  Thanks in advance for your feedback.

[Luke 532]

Fairholme 2015 call (live call right now, 11am Eastern), Berkowitz: "The real estate position is unique and it's a once-in-a-lifetime opportunity that you cannot recreate."  Later, "...we are as optimistic on the investment as ever."  Then, "Retail losses will not eat up the value of the real estate.  The retail losses will stop with either success or failure."  Later, "every real estate expert we've (hired? - I didn't hear which word he used) cannot disprove the values."

[BTShine]

Here is a musing I'm having: 

 

If Amazon continues its move into brick and mortar (see today's rumor about Amazon's interest in buying Radio Shack's RE property) does that show investors that the physical store will never go away?  Online sales growth is slowing and I believe in total it is currently only ~ 6% of retailer sales. 

 

[Luke 532]

 

I was wondering if a board member who is fluent in both English and French, would be willing to translate the following SHLD thesis:

http://linvestisseurfrancais.com/wp-content/uploads/2014/05/Apart%C3%A9-de-lIF-Juin-2014-Sur-Le-Grill.pdf

 

I've tried Google translate, but it mangles everything and you're left with very little nuance.

Thanks.

 

Here's some discussion on it: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg181045/#msg181045

 

[peridotcapital]

Fairholme 2015 call (live call right now, 11am Eastern), Berkowitz: "The real estate position is unique and it's a once-in-a-lifetime opportunity that you cannot recreate."  Later, "...we are as optimistic on the investment as ever."  Then, "Retail losses will not eat up the value of the real estate.  The retail losses will stop with either success or failure."  Later, "every real estate expert we've (hired? - I didn't hear which word he used) cannot disprove the values."

 

The thesis is the same as it was 10 years ago and yet it has been a horrible investment. Very few people dispute the value of the real estate.... that is why the company has an enterprise value approaching $10 billion... because the real estate is so valuable.

 

While I guess it's true that the retail losses will eventually stop (once they close the very last store), the status quo is in fact eating into the real estate value. How one can deny this is hard for me to understand. For instance, if you sell the Cupertino store for $100M and that cash is used to reinvest into a money-losing retail business, and/or to pay interest on debt you had to issue to fund your money-losing retail business, and/or used to pay workers' pensions because your retail business does not generate cash flow to cover them itself, how have the equity holders reaped the full value of that real estate? Mind boggling.

[BTShine]

Here's one article from the MSM that is positive.  http://t.co/S9Vj4QvFHZ      I agree with the gentlemen from Tenth Avenue quoted in this article.

 

Also, was anyone else surprised by Kohl's +3.7% comps released this morning?  KSS had been losing comp sales all year until this quarter.  Even SHLD Domestic comp sales had been beating KSS.  Makes me optimistic for SHLD comp sales figures.

[Luke 532]

For those that loan out their shares, did you experience any difficulties or problems during the recent rights offering or during the LE spin-off?  I'm just curious as I would imagine some brokers were confused by all the financial engineering and perhaps that impacted the lending market in some way, shape, or form.  Thanks in advance for your feedback.

 

Bump.  Just wanted to draw attention to the question above in case anybody that has input may not have seen it.  Many thanks.

[ni-co]

"Bruce Berkowitz: Sears a Once-in-a-Lifetime Opportunity"

 

Here is a link to BB's latest call:

http://www.valuewalk.com/2015/02/bruce-berkowitz-sears-lifetime-opportunity/

 

Starting at the 31:24 mark.

[ni-co]

For those that loan out their shares, did you experience any difficulties or problems during the recent rights offering or during the LE spin-off?  I'm just curious as I would imagine some brokers were confused by all the financial engineering and perhaps that impacted the lending market in some way, shape, or form.  Thanks in advance for your feedback.

 

Bump.  Just wanted to draw attention to the question above in case anybody that has input may not have seen it.  Many thanks.

 

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

[constructive]

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

 

Is this just paranoia? Can you point to one time in the last 50 years of the US market that someone has lost money by lending out stock? The brokers and custodial banks manage this risk, and they are backed up by SIPC insurance.

[BTShine]

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

 

Is this just paranoia? Can you point to one time in the last 50 years of the US market that someone has lost money by lending out stock? The brokers and custodial banks manage this risk, and they are backed up by SIPC insurance.

 

Isn't SIPC insurance only up to $500,000?    Some people might have stakes that are larger than that, or could become larger than $500k if SHLD goes up.

[abitofvalue]

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

 

Is this just paranoia? Can you point to one time in the last 50 years of the US market that someone has lost money by lending out stock? The brokers and custodial banks manage this risk, and they are backed up by SIPC insurance.

 

The one time I know off was post Lehman. A bunch of institutions lost money / securities due mismanagement of the custodial funds by the custodial banks.  Not sure that situation would apply here but securities lending isn't risk free returns.

[constructive]

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

 

Is this just paranoia? Can you point to one time in the last 50 years of the US market that someone has lost money by lending out stock? The brokers and custodial banks manage this risk, and they are backed up by SIPC insurance.

 

Isn't SIPC insurance only up to $500,000?    Some people might have stakes that are larger than that, or could become larger than $500k if SHLD goes up.

 

Yeah. But I don't think this particular situation ever results in broker losses and SIPC payout - although if it did, you would still be covered.

 

The DTCC and custodial banks handle borrowing. As I understand it, if a short seller blows up, market counterparties get their lent shares back regardless of whether the short-seller's broker takes losses.

[constructive]

The one time I know off was post Lehman. A bunch of institutions lost money / securities due mismanagement of the custodial funds by the custodial banks.  Not sure that situation would apply here but securities lending isn't risk free returns.

 

Certainly Lehman counterparties lost money on CDS and other securities. Do you have a source discussing lent stock specifically?

[ni-co]

I'm not loaning it out because of counter party risk. I don't want to pay for an idiot shortseller's blow-up.

 

Is this just paranoia? Can you point to one time in the last 50 years of the US market that someone has lost money by lending out stock? The brokers and custodial banks manage this risk, and they are backed up by SIPC insurance.

 

Isn't SIPC insurance only up to $500,000?    Some people might have stakes that are larger than that, or could become larger than $500k if SHLD goes up.

 

I looked it up. In the case of IB, IB is the counter party for their share lending program (which is good news to me). However, share lending is not SIPC insured but the collateral is held in segregated accounts (at least that's the case for IB – I don't know about other brokers). This is be good enough for me to actually think about lending my SHLD shares out.