SHLDQ - Sears Holdings Corp

[adesigar]

Was someone aware of this delivery division, which got Costco as a client?

 

http://nypost.com/2016/07/14/sears-finds-a-new-way-to-rake-in-cash/

 

Yes. They also deliver for the US Military.

Heres an article I linked about them sometime last year.

http://www.eweek.com/mobile/sears-dumps-paper-gains-efficiency-with-app-based-delivery-system.html

[Foreign Tuffett]

Eddie apparently isn't hurting for liquidity. We know he's a big Ayn Rand admirer, so naming the yacht "Fountainhead" sounds right.

 

http://pagesix.com/2016/07/07/sears-ceo-revealed-as-mystery-megayacht-owner/

[Mephistopheles]

Eddie apparently isn't hurting for liquidity. We know he's a big Ayn Rand admirer, so naming the yacht "Fountainhead" sounds right.

 

http://pagesix.com/2016/07/07/sears-ceo-revealed-as-mystery-megayacht-owner/

 

A 288-foot yacht loomed over the horizon in the Hamptons this weekend, and boatloads of women were being ferried out to the lavish launch.

 

The megayacht Fountainhead was docked off East Hampton in Gardiner’s Bay.

 

Apparently the yacht has a hole in it and started gathering water during the launch party. Eddie began throwing deck furniture, marble sculptures, sound equipment, and other valuable items into the river just to keep the yacht afloat. When things went from bad to worse, a shrewd and determined Eddie started pushing his own guests overboard. Word is that almost all of the people who attended the party are now under water.

[Jurgis]

;D ROFLMAO  ;D

[ScottHall]

http://finance.yahoo.com/news/kmart-workers-believe-stores-going-162400821.html

[alpha asset strategies]

http://finance.yahoo.com/news/kmart-workers-believe-stores-going-162400821.html

 

As soon as the suppliers get antsy, SHLD will be in Chapter 11 in no time.  Then we will finally get to see exactly how much their assets are really worth.

[Ballinvarosig Investors]

One person claimed that even Kmart's most profitable stores are getting their stock rooms purged.

 

"Stores with that much sales volume having nothing in the stock room is as clear an indication as any that they do not plan for the Kmart division to be around long," they wrote.

Said it a few months back, but I think Lampert is looking to allow the K-Mart and Sears subsidiaries fall into chapter 11.

[alpha asset strategies]

One person claimed that even Kmart's most profitable stores are getting their stock rooms purged.

 

"Stores with that much sales volume having nothing in the stock room is as clear an indication as any that they do not plan for the Kmart division to be around long," they wrote.

Said it a few months back, but I think Lampert is looking to allow the K-Mart and Sears subsidiaries fall into chapter 11.

 

I agree with you.  Chapter 11 will allow Lampert to break hundreds of SHLD's "undesirable" leases and finally close down those stores while eliminating billions in liabilities.  I think we will see them keep most of the Seritage leases due to Lampert and Berkowitz's substantial vested interest in the REIT - and the REIT stores are most likely some of the best remaining ones.  I just don't see how SHLD's current equity holders don't end up with a $0.

 

SRG may provide Lampert and Berkowitz with an opportunity to salvage at least some of their huge investment in SHLD and the related spin-offs, etc. 

[Picasso]

Someone sent this to me.

 

https://www.instagram.com/teddylampert/

 

Probably the best indication we've had that Eddie has given up on SYW.  I expect the stock to go up 300% on Monday.

[NoCalledStrikes]

Sears Auto story.  I haven't been in a sears for several years, but I needed a new car battery. Frustrated that my OEM battery only lasted 2.5 years, I checked Consumer's Reports for the recommendation and the Die Hard was actually the highest rated battery for my car by a good bit over much more expensive batteries. So based on quality alone, I am prepared to pay the $125 price for my battery and be perfectly happy.

 

And for me, the story does have a happy ending. I go to sears.com and discover that I can buy the battery online for store delivery at 20% off.  I then login to my SYW account which I have never used but which has 58000 points in it from my water heater and dishwasher purchase from several years back.  I also learn that the SYW points are worth $58 and were going to expire next month (who knew?).  So I end up, buying the battery for $48 when everything was said and done.  So while I was happy, Eddie just lost $77 because I was perfectly willing to pay $125 and he doesn't have a way to avoid giving discounts to people who weren't seeking them.

 

As for the Sears Auto store, it was noon on Saturday and while there were cars in the service bay, there was only one other customer in the store. The store itself was circa 1988, the store was physically clean but all the tile, walls, and ceilings had the look of 25 years of discoloration and wear.  There were two display racks, both so unappealing that I didn't walk over while waiting for my battery.

 

Sears "where America used to shop"

[Aqul]

Hi all, my first post here.

Have you guys seen the thesis on SHLD in March 2016 Value Investor's Insight and have some comments on it?

[enoch01]

Hi all, my first post here.

Have you guys seen the thesis on SHLD in March 2016 Value Investor's Insight and have some comments on it?

 

No, and no.  Do you have comments on it?

[Aqul]

I've attached it; the bit on SHLD is towards the end of the document. I haven't gone through this entire thread and don't want to repeat anything, so was just wondering if this might add to the discussion.

I find the SOTP math compelling here (although I don't know if some of the assets people are breaking out can really be valued independently of the retailer),but  there's obviously no catalyst in sight. 

VII16TriMarch.PDF

[alpha asset strategies]

Hi all, my first post here.

Have you guys seen the thesis on SHLD in March 2016 Value Investor's Insight and have some comments on it?

 

No, and no.  Do you have comments on it?

 

Here is the link to Value Investor's Insight piece.  The SHLD thesis starts on page 21.

 

http://www.valueinvestorinsight.com/pdfs/VII16TriMarch.PDF

 

I didn't have much time, so I just browsed the thesis quickly.  At first glance, the valuation for the home-services business seems highly optimistic (and perhaps even flawed).  They mention $2.35 billion in annual revenue at 15% EBITDA margins for $350 million in annual EBITDA.  They then apply an 8 to 10 times multiple for an enterprise value of $2.8 to $3.5 billion.

 

However, the most recent 10-K filing states that 2015 Total Service Revenue was $2.127 billion - and that includes all auto service revenue - from 658 auto centers , extended contract / warranty revenue and repair & installation revenue.  I think it is a rational assumption that auto service revenue - excluding parts - at 658 auto centers and extended contract / warranty revenue is easily several hundred million dollars annually, and perhaps up to $1 billion or more.  If you subtract this total from the $2.127 billion figure, you should be left with a rough estimate of the home-services business annual revenue - which is clearly much, much less than $2.35 billion.  As such, the home-services business revenue quoted in the VII piece clearly seems to be overstated - perhaps as much as by 100%!

 

The other factor is that Home Services is a rapidly shrinking business.  The 10-K states that Home Services revenue declined by $139 million during 2014 and $110 million during 2015.  What type of multiple does a rapidly declining business such as that deserve?  What will happen to Home Services if / when SHLD drastically closes hundreds of more stores?  I would have to think that the rapid contraction would continue, and probably even accelerate.

 

The other thing that immediately jumped out at me is this paragraph:

 

"The at-cost value of the company’s net

inventory at the end of 2015 was $3.6 billion.

Towle points out that if it were liquidated

quickly it would likely be sold below

cost, but if it were sold over time it would

likely be sold above cost. He just assumes

it’s worth its $3.6 billion cost, bringing the

total estimated value of it plus the homeservices

and warranty businesses solidly

above the current enterprise value."

 

He assumes all inventory could be liquidated at carrying cost over time.  First of all, I absolutely do not agree with this assumption, but I'll allow it.  How much time?  What about the $100 to $150 million per month in operating cash burn that SHLD experiences.  If a "managed liquidation" would take 9 months, you are looking at $900 million to $1.35 billion in operating cash burn.  Plus, there has historically been substantial cash charges  (ie. severance payments, lease termination charges, etc.) for each and every store that they have closed.  If they tried to quickly shutter 500 to 1,000 stores, those one-time store closing costs would easily reach several hundred million dollars, and probably even more.

 

Many bulls - who keep touting the value of SHLD's assets - seem to dramatically underestimate the amount of time, effort and money that it takes to sell off, monetize and dramatically downsize a HUGE organization - that continues to burn well over $1 billion per year in operating losses - with 1,600+ separate locations, 170k+ employees, thousands of trucks, etc.  THIS JUST CANNOT BE DONE RAPIDLY - AND THE ENTIRE PROCESS IS GOING TO COST BILLIONS OF DOLLARS IN ADDITIONAL LOSSES.

 

I need to dig into the other assumptions / valuations used in the article when I have more time. 

 

 

 

[oddballstocks]

Here's something I don't see mentioned, but something I see in real life.

 

Supposedly there is a lot of value to the real estate.  But in the areas that I've seen Sears malls are expanding around Sears locations without repurposing them.  A shopping mall will need to expand, the Sears that is on the verge of shutting is a perfect choice, and instead they build a brand new wing.  I've seen this with Kmart's as well.  A strip mall with a dilapidated Kmart sitting empty while on the other side a new wing is being built out.  Why not repurpose the Kmart?

 

I wonder if Sears is a day late dollar short type of a thing.  If these places are going to be repurposed who is going to move in if demand was already satisfied?

 

On Sears Home Services.  We've used them for carpet cleaning in the past.  We used them last year, they did such a poor job my wife swore off ever calling them again.  The carpet stunk and it appeared dirtier than before we called them.  Maybe poor quality control is why service revenue is declining?

[Ballinvarosig Investors]

I wonder if Sears is a day late dollar short type of a thing.  If these places are going to be repurposed who is going to move in if demand was already satisfied?

That was the whole point of Seritage. Going back to the Baker Street analysis, the Seritage vehicle was first created in 2012, well before the actual spin-off occurs. During this time Sears was investing money into re-purposing these properties to a more modern retail environment. Reading the Baker Street analysis (I basically just cross-referenced the names of stores they talked about being re-purposed with what ended up in Seritage). It certainly looks like most of the properties Baker Street featured as being re-purposed did indeed end up being spun-out to Seritage. To me, that lends some credence to the idea that a disproportionate amount of the better Sears properties have already been spun-out. So where does that leave us today? Why not just spin-out a whole bunch of the other great properties that Sears are supposed to own? Well, there's a number of reasons why this isn't possible. Firstly, the Sears liquidity position is dire; there is no money to put into dressing up the properties like Sears did with Seritage initially. Secondly, it doesn't look like a spin-off is even possible as the pension fund has a lien on the real estate. Finally, what is the extent of the useful real estate that is left? Given the chronic lack of investment in the last ten years, if real estate was to be spun out, you would also need serious additional capital to get the properties into shape.

 

The whole thing just looks like it's in paralysis to me. No assets can be spun out because the pension fund is a mess, the pension fund can't be plugged because the company has no money, the company is running out of money because the underlying retail business is haemorrhaging cash. I do not see the way out here.

[scorpioncapital]

Do you mean that some of the properties spun-out to Seritage had already been renovated? I think one has to look at a property by property basis. Locations in B,C class malls may be like your 20th stock, not really worth holding and probably not your best idea. But the A-list and non-mall attached properties could be good depending on location.

[Candyman1]

Here is the link to Value Investor's Insight piece.  The SHLD thesis starts on page 21.

 

http://www.valueinvestorinsight.com/pdfs/VII16TriMarch.PDF

 

Where should I start ... this analysis is full of holes.

- He says they should close down the stores quickly, but then he assumes the inventory will not have to be discounted and is worth 100% of current balance sheet value.

- It does not take into account the reason why SHLD has $4.6 billion in inventory and only $1.6 billion in payables for merchandise. The trade already knows that this is going out of business and does not want to extend credit. A friend of mine used to deliver to Kmart and stopped because he could not find credit insurance and he did not want to take the risk. How long before the last $1.6 billion in payables is pulled by vendors?

- He does not include that it costs them 2 million to close a store on average. Close 1700 more stores and you are out of 3.4 billion.

- He does assume SHLD will make 7.5% on its pension plan, so no haircut there. Does anyone think that SHLD will get 7.5% return on its plan assets given the current market and interest rate environment? SHLD pension plan is about 60% funded and last time i looked had 34% in equities. Good luck to Eddie on that one. SHLD now has a $2 billion hole in its pension funding, what do you think that the size of pension deficit becomes when we adjust to a more realistic 5% rate of return? There is a reason the PBGC forced SHLD into a deal. They know how bad it looks and will not allow him to take anymore assets out of the business it seems.

- Also what about the $2 billion in cash SHLD is likely to blow through this year?

- Or what about the fact that in the conference call for JCP they openly say that whenever a SHLD store closes their sales go up. And suddenly they are opening 500 appliance stores at JCP which seem to be targeting SHLD. The best category that Sears has is under attack by JCP. They overlap in about 400 stores. JCP says that once they finish the roll out to 500 stores in the fall they will start marketing aggressively around appliances. Awesome news for Sears' SSS and margins.

- What about the fact that the article assumes that all that real estate will be rentable at $40 a sq foot. Last time I checked that is for repurposed space. From SRG you can see that it seems to cost about $170 per sq foot to repurpose space. And it takes 18 months. Where is the cash for that? And most of the real estate will not garner $40 a sq foot. (FYI. Anyone notice that neither Macerich nor Simon have reclaimed even one store in the SRG Joint Ventures? I guess they think that getting $10 a square foot and waiting for 100% of the stores to come available is more attractive.)

- And the warranty business is worth 5 times EBITDA ... don't they sell the warranties in the stores? And isn't the article assuming that we will close the stores?

- And what about the service and repair business? It is shrinking rapidly and btw isn't it also closely related to Sears? No more stores means a lot less clientele.

- And what about the brands? Aren't they collateral for the insurance business? But lets say they are available. Kenmore had a 30% market share, now it is less than 10% and shrinking fast. Young people don't even know it exists. Yes, GE sold its appliance business for $5.4 b, but that was a business with a 30% marketshare, a huge presence in the newbuilt market and with R&D and production. Kenmore is just a brand that doesn't offer anything special. Kenmore used to have a great relationship with Whirlpool where they got exclusivity for all inventions but SHLD screwed that up by putting the appliance production up to the lowest bidder. So what is the company that buys it going to do with it? It has only one sales outlet being Sears, that is at risk of going out of business soon. And how is Sears going to offer a margin to the buyer of Kenmore or the other brands for keeping exclusivity. DieHard too is an also ran business and Craftsman has held up a little better in marketshare than Kenmore, but not much. A friend of mine returned two Craftsman lawnmowers that broke down after a few uses, then bought a Honda and it has been going for years without issues. I do not think these brands are worth what many think they are worth.

- And lastly, why assume that Eddie is going to start accelerating the store closings? He hasn't done so for over a decade, but I guess he is about the change his mind. =) Whenever I go through some of the SHLD presentations I wonder if Eddie Lampert actually understands the predicament he is in. Actually if SHLD tries to close down all the stores, it wouldn't have enough cash to go through the exercise. Outside of Chapter 11 it costs about 2 million to close a store. 1700 stores makes 3.4 billion.

 

[valuestudent]

Great Post Candyman!!!  The biggest flaw in the write-up as you mentioned is that they are assuming that the retailer is worth zero and should be shut down, but then value the Home Services and Kenmore/Craftsman/Diehard brands as separate entities based upon the sales in still opened stores. You can't have it both ways.  Also, there is no adjustment for any continued losses that will eat away at the value over time. I also thought it was far fetched that rental rates are $40 dollars.  A sears can be 150,000 square feet. How many restaurants fill up a space that big?? Not too many. So you may rent out a portion of the location at these "rates" but the whole thing maybe harder to do. Also, Seritage shows the real market rates for rents. 

[elevensecsrt4]

http://searsholdings.com/press-releases/pr/1984

 

More of the same.

 

Red ink, less sales,

 

Another loan floated from ESL backed by inventory

 

this guy has plenty of patience (or problems)

[tooskinneejs]

Sears has lost $866 million so far this year, or $8.11 per share.  Operating cash flows are negative $640 million so far this year.  The company has less than $300 million in cash left and now has a $2.7 billion accumulated deficit.  What are the chances the company is able to meet its billions of dollars in obligations as they come due and stay solvent much longer?

 

I went into a KMart recently and it looked like a store stuck in the 70's.

[fareastwarriors]

Lampert’s Lifeline Renews Debate Over Whether Sears Can Be Saved

 

http://www.bloomberg.com/news/articles/2016-08-26/lampert-s-lifeline-renews-debate-over-whether-sears-can-be-saved

[oddballstocks]

I'm calling that Sears is "done" this is based on my very Peter Lynch research methods..

 

Tonight while driving to a Mexican joint for dinner we passed a Sears. My wife says as we pass "Sears is done, they're dead." Then she proceeded to tell me about a story she saw on Facebook today about the loans from ESL and Berkowitz.

 

Why is this important? My wife is not an investor, she doesn't follow business news, nothing. I don't discuss investing with her, she couldn't describe what a stock or bond is. That Sears has recused the mainstream in this way is bad. The article described some of the transaction, what she took away was if they didn't get a loan from the owner the doors would be shut.

 

When your store is on Facebook with click-baity articles trying to describe financial transactions to women who are there for the baby pictures your store has hit a new low. This is the audience who are potential shoppers there. After seeing stuff like that will they keep shopping there?

[Marve2013]

Just curious -

 

If we were to assume for a moment that the nearly impossible turns possible ... that Sears is able to stop its bleeding, and have a much smaller but profit-generating business.  Would that change your view of the value of all the assets?

 

- KCD - so yes, a much smaller business.  But let's say Sears strikes up a royalty agreement with other retailers?  The value of the brands would then be based on how much they could potentially generate through other outlets other than the dying, dilapidated Sears malls? 

 

- RE - which can be accounted as those 1) still in the now much smaller operations and 2) shut down.  Perhaps Shop Your Way post all the peeling is a small business, but OK as a platform to build something upon it? And the shut down stores could be finally let go or redeveloped.  With where SRG is trading, one has to think many think there is a net value to be gained regardless of having to incur all the re-development costs.

 

- Warranties, Auto-service, Logistics, Repair + Maintenance - there has to be some value, however small 

 

- Net Inventory (of Payables) of shut down stores - pick whatever discount you want to apply. 

 

Take all that and net it down with the Net Debt and Pension Obligations and Severance Packages, is there really no value?  Are we being caught up in the wave of "geez, it's such a dying business" or "the stores look so aaawwwfuuulllll" kind of thinking?

 

Nothing new here obviously, just thinking out loud.  Many thanks for your inputs !

[scorpioncapital]

Maybe Sears should become a 100% online retailer with some of its stores as warehouses for logistics. Taking it one step further, maybe they should just be a pool of customer lists selling online things they have and do not have (virtual + real inventory). In this scenario, the real world business is in run-off, the real estate is pretty much in Seritage to be converted to hair salons and what not, and old Sears's value is simply a list of customers and an online sales platform which could be acquired by say Walmart similar to Jet.com. But I understand it's very difficult to wind up / run-off a business. Sometimes, there is value that literally cannot be sold as you are the only one that can hold it. This strange scenario happened to me once. You make some money but you want to shut it down but no way to do it except to just give up the operation.