SHLDQ - Sears Holdings Corp

[arcube]

Peridot, what qualifies your ability to analyze real estate asset values better than the throng of experts that Berkowitz hired? Pardon me if I trust an immensely successful long-term value investor like Bruce over your word that you looked at each property...

 

You shouldn't blindly trust me. You should do your own work. I was asked my opinion so I provided it. What baffles me is that people still trust Bruce on this investment, even though if you look at his track record with it during the 11 years he has owned it, it's pathetic. Smart people make mistakes. Bruce made a mistake. No matter what happens, Bruce's CAGR on SHLD will never beat the S&P 500 over his holding period.

 

As for valuing real estate, it is not a hugely complicated process. You don't need to spend tens of thousands of dollars on "experts." Anyone who values assets for a living and is relatively good at it can do it well. And to assist you, there are dozens of public retail REITS to use as comps and to help you determine what the costs and returns are for developing retail square footage. Local governments conduct annual appraisals. You don't have to actually visit 1,600 stores. You focus on the best hundred and you take smaller diverse samples of the rest, etc. One of the things I did was analyze the REMIC stores. Made for an excellent sample.

 

I don't think it's a stretch to trust people who have been on the right side of SHLD (I have been long the bonds in recent years, which have trounced the equity on both an absolute basis and risk-adjusted basis) more than people who have been dead wrong on the equity. You might disagree, but it's not a crazy idea. That doesn't mean I'm smarter than Bruce, it just means he made a mistake. Everybody does. But it's certainly reasonable to admit that, perhaps, on Sears Holdings specifically, I and many others have done a better job analyzing the investment. Especially when he has made bad calls on real estate before (St Joe is an obvious one to point to).

 

I just find the argument that Eddie and Bruce are smart, and therefore SHLD must be a good investment, to be silly. Smart people make errors and the last 11 years have shown that they both made the same one on his particular stock. The fact that SHLD's operations has burned through more than $4.3 billion of cash over the last three years ($40 per SHLD share) and Bruce's NAV estimate has stayed pretty much the same ($150 or so) tells me all I need to know. His sum of the parts valuation doesn't make sense when the company continues to operate as a retail company and burn over $100M of cash per month. And when Eddie sells off 40% of the company's owned stores for well below Bruce's real estate valuation (and their value to SHLD equity holders is even less than what they were sold for because they remain open and in the red, that just drives home the point. How much more evidence do we need?

+1

[ni-co]

I don't think there's such a thing like "being right" on xyz. I've always been saying that it's about risk and reward. The risk has been large but so has been the potential reward – and maybe still is (though the bet's getting worse with every quarter). If you can make 5x or more on your equity you can get along with quite a bit of risk – this is just a matter of proper position sizing. I don't know why people don't get this.

 

I make my money by seeking out asymmetric risk/reward bets and I'd still argue that SHLD has been such a bet (decreasingly so). I'm perfectly fine with losing some of them (I don't enjoy that, of course!), as long as I win in the long run. You need to make sure that you'll live another day, though. Other investors might have another view on things but I'd argue they're doing the same thing and just don't realize it.

[Ballinvarosig Investors]

Bruce Berkowitz must be out of his mind to continue to buy more stock. He is supposed to be a fiduciary, but he is exposing his clients to a massive risk. The capital structure of Sears is now in such bad shape, any sort of external shock could close down credit markets which would cause the value of the illiquid real estate assets to evaporate. I mean, if people thought that Seritage group of properties was sold on the cheap, just imagine what the real estate would fetch now in today's climate?

 

Buffett always warns about never wanting to count on the kindness of strangers. Well, that is where Berkowitz has put his clients now.

[tede02]

I just find the argument that Eddie and Bruce are smart, and therefore SHLD must be a good investment, to be silly. Smart people make errors and the last 11 years have shown that they both made the same one on his particular stock. The fact that SHLD's operations has burned through more than $4.3 billion of cash over the last three years ($40 per SHLD share) and Bruce's NAV estimate has stayed pretty much the same ($150 or so) tells me all I need to know. His sum of the parts valuation doesn't make sense when the company continues to operate as a retail company and burn over $100M of cash per month. And when Eddie sells off 40% of the company's owned stores for well below Bruce's real estate valuation (and their value to SHLD equity holders is even less than what they were sold for because they remain open and in the red, that just drives home the point. How much more evidence do we need?

 

Couldn't agree more.  I have never understood why they don't speed up the liquidation.  Either sell the brands and real estate out-right or spin them off.  Selling assets to keep funding the hopeless turn around efforts is just wasteful. 

[tng]

Bruce Berkowitz must be out of his mind to continue to buy more stock. He is supposed to be a fiduciary, but he is exposing his clients to a massive risk. The capital structure of Sears is now in such bad shape, any sort of external shock could close down credit markets which would cause the value of the illiquid real estate assets to evaporate. I mean, if people thought that Seritage group of properties was sold on the cheap, just imagine what the real estate would fetch now in today's climate?

 

Buffett always warns about never wanting to count on the kindness of strangers. Well, that is where Berkowitz has put his clients now.

 

Given how much BAC has fallen, I wonder if Berkowitz would stop accumulating SHLD and start building a big position in BAC again (since he sold a lot of it off in the previous quarters). Logically, that would make sense unless he thinks the BAC thesis has completely fallen apart, which I don't. If he favors accumulating SHLD over BAC, then I think he isn't being rational any more.

[opihiman2]

Whoa, what happened to this thread?  Was it pruned/censored? 

[BTShine]

I know RE has been discussed in length on here.  That said, I came accross this  Real Estate Outlook from Green Street Advisors and found it interesting.  Not sure when it was created.  Looks like late 2014 or early 2015. 

 

http://www.greenstreetadvisors.com/pdf/sample_research/FeaturedInsight_NREI.pdf

[tooskinneejs]

This company appears to be circling the drain.  They have very little cash even after selling off lots of real estate and other assets.  I could see a significant liquidity problem in the short term where their borrowing base capacity gets pinched.  I'd guess this is the final year for Sears.

[adesigar]

Bruce Berkowitz on the board

 

http://finance.yahoo.com/news/sears-holdings-elects-bruce-r-110000956.html

[tooskinneejs]

Bruce Berkowitz on the board

 

http://finance.yahoo.com/news/sears-holdings-elects-bruce-r-110000956.html

 

Bruce's investment might be the best illustration in modern business history of throwing good money after bad.  Well, I guess I'd have to put Eddie's repurchase of shares over the last 10 years at the top the list.

[Phaceliacapital]

Letter:

 

http://www.valuewalk.com/2016/02/sears-holdings-corp-shld-lampert-letter/

[tooskinneejs]

As of January 31, 2016, Sears has a stockholders' deficit of $2,000,000,000.  For FY 15, Sears had a net loss of $1,100,000,000.  Total sales for FY 15 declined 20 percent.  The company has $238,000,000 of cash to its name and this cash is comprised entirely of unredeemed gift cards.  Offsetting this cash, the company has $868,000,000 of short term borrowings due in FY 16.

 

And yet, in the shareholders' letter, Eddie blames Sears' problems on the weather. 

 

 

[tede02]

Pure anecdotal evidence, but I've never heard one person actually talk about the Shop Your Way concept (as a consumer).  Further, there is no way in hell that Sears is going to be a force in apparel sales again.  Only bright spot in the letter was the conclusion which where Lampert expressed some sense of urgency.   

[Spekulatius]

Sense of urgency? It's too late for that, Sears is done for.

[adesigar]

Berkowitz Conference Call Transcript is available

 

http://www.fairholmefundsinc.com/Documents/Call2016.pdf

[adesigar]

Sears laying off 250 in Admin offices

http://www.chicagotribune.com/business/ct-sears-layoffs-0226-biz-20160225-story.html

[adesigar]

NBC show Superstore pilot shot at Kmart

http://blog.searsholdings.com/voices-from-the-field/behind-the-scenes-of-the-superstore-pilot/

[CorpRaider]

Next week they are shooting a Western using the stores as abandoned silver boom towns.  Don't worry the studio is supplying the tumbleweed.  Too obvious?  :D

[tooskinneejs]

Berkowitz Conference Call Transcript is available

 

http://www.fairholmefundsinc.com/Documents/Call2016.pdf

 

A few gems from the transcript:

 

"the retail losses, is, in our opinion, voluntary"

 

"Sears has a vast real estate empire"

 

"A considerable portion of the past cash burn is voluntary"

 

"much of what Sears’ management has written has proven true"

 

 

[tooskinneejs]

Here are a few excerpts from a blistering take down of Sears' Eddie Lampert (from Bloomberg):

 

"Sears CEO All Talk, No Action"

"On Thursday, the reclusive hedge manager released his annual letter to shareholders, in which he whined about how unfair it was that traditional retailers such as Sears are held to different standards than West Coast startups. He highlighted Uber's ability to raise almost unlimited capital, Amazon's historical evasion of sales tax, and Tesla's acceptance of government subsidies."

 

"So let's go back to 2006 -- shortly after Lampert orchestrated the merger of Sears and K-Mart and took the reins of the newly formed Sears Holdings. At the time, Sears' enterprise value stood at $22 billion, it took in $49 billion in annual revenue and made $2.2 billion in cash from operations. Today, its enterprise value is around $4 billion, and it's been five years since the company reported a profit."

 

"By any financial measure -- sales, profit, cash flow -- Lampert has done nothing but rip apart the retailer. He's also saddled it with a lot of debt, tapping $5 billion in two years from capital raises and asset sales."

 

"And its ability to borrow money is drying up, starting in April, when it will lose $1.3 billion in revolving credit availability, according to Bloomberg Intelligence analyst Noel Hebert. The company is burning through cash so fast, a number of analysts surveyed by Gadfly give Sears about two years before it's forced to fold."

 

Here is the entire article...

 

http://www.bloomberg.com/gadfly/articles/2016-02-26/eddie-lampert-s-sears-promises-lack-results

 

 

 

 

[fareastwarriors]

Just burn the stores down for fire insurance money....

[adesigar]

This company appears to be circling the drain.  They have very little cash even after selling off lots of real estate and other assets.  I could see a significant liquidity problem in the short term where their borrowing base capacity gets pinched.  I'd guess this is the final year for Sears.

 

Wasn't 2013 the final year?

and 2014?

and 2015?

now its 2016 which is the final year

Next year it will be 2017

[adesigar]

Bruce Berkowitz on the board

 

http://finance.yahoo.com/news/sears-holdings-elects-bruce-r-110000956.html

 

Bruce's investment might be the best illustration in modern business history of throwing good money after bad.  Well, I guess I'd have to put Eddie's repurchase of shares over the last 10 years at the top the list.

 

I think you are looking for the ZINC thread.

[adesigar]

Berkowitz Conference Call Transcript is available

 

http://www.fairholmefundsinc.com/Documents/Call2016.pdf

 

A few gems from the transcript:

 

"the retail losses, is, in our opinion, voluntary"

 

"Sears has a vast real estate empire"

 

"A considerable portion of the past cash burn is voluntary"

 

"much of what Sears’ management has written has proven true"

 

And which of those is incorrect and why?

[merkhet]

I think to some extent it's helpful that both Berkwotiz & Lampert have pointed out that they shouldn't be "burning the furniture to keep warm."

 

Berkowitz:

 

This included our view regarding the need to preserve the enormous value of its assets and the imperative to promptly return to profitability. I focused on the cash burn, and how the continuation of the cash burn does not build confidence or trust among all of Sears’ constituents – I’m talking about Sears’ customers, vendors, suppliers, employees, creditors, and investors.

 

I also discussed my belief that eliminating the cash burn will do more to optimize the value of Sears’ assets than any other action. I also shared my view for Sears to help shareholders better understand the company’s assets and strategies by giving them more information.

 

Lampert:

 

Overall, as we look at our performance, it’s clear that we need to accelerate our efforts. We are not going to continue to operate business as usual with negative EBITDA, and we are not going to let operating losses erode the asset value of the company.