SHLDQ - Sears Holdings Corp

[Gregmal]

I personally think Macy's is becoming the new SHLD. Not in a disparaging way either. I bought a little this morning. Seems to have a lot in common with much of the original SHLD thesis except a bit of a head start on monetization and at least for the time being, no problem turning a profit.

[ragnarisapirate]

how much can all the RE here and at Macy's really be worth? It would seem that this is a weird time to be buying commercial space, given how retail has been fairing lately- if they all shut their stores down, and there is a glut of inventory coming up, it doesn't seem to bode well.

 

Maybe it could all be redeveloped into residential since it's an area that seems to be doing well. Utilities and such would already be close by and all that.

[DTEJD1997]

how much can all the RE here and at Macy's really be worth? It would seem that this is a weird time to be buying commercial space, given how retail has been fairing lately- if they all shut their stores down, and there is a glut of inventory coming up, it doesn't seem to bode well.

 

Maybe it could all be redeveloped into residential since it's an area that seems to be doing well. Utilities and such would already be close by and all that.

 

I live about a mile way from one of Macy's stores that is to be closed.  Less than a month ago, I bought commercial space 1/4 mile away from that store for $11/sq. ft. 

 

Of course, two totally different types of buildings...BUT commercial real estate in that area is distressed.  The mall that the Macy's is attached to probably has vacancy rates of 30-40%.  Of the tenants that are left, very few are national or regional retailers.  They are mostly Ma & Pa kettle...Lots of hair salons & cell phone stores.  Nothing high end.

 

I would hazard a guess that the Macy's store is worth virtually nothing.  The same thing for the land underneath it.  Of course, other stores very well might be worth something...but I would be skeptical that more than a few stores that are being closed have tremendous value.

[alpha asset strategies]

Like the brands, SHLD's remaining real estate is not nearly as valuable as many have claimed over the years.  Lampert is going to attempt to "walk" the SHLD stock price to $0 in the most drawn out liquidation process possible.

[InelegantInvestor]

Class B and Class C malls are doomed and values are overstated. There may still be value in Class A assets.

[benhacker]

Alpha Asset, would you be willing to share how you are structuring your position that SHLD will file soon?  You said you have a big chunk of your portfolio betting in this upthread, and I'm curious what way you are expressing since as you note borrow cost is huge, put vol is high, interest on debt is big, etc...

 

Thanks,

[fareastwarriors]

https://www.bloomberg.com/gadfly/articles/2017-01-05/sears-s-sinking-ship-adds-craftsman-to-castaways

[tede02]

I read the Bloomberg article.  If the numbers are ball-park on the cash burn, the company will eat up all of the Craftsman proceeds within 2017.  It just seems crazy.  Why the hell would you keep selling off assets to subsidize a failing retailer that just gobbles up all the cash proceeds?  Obviously crazy or beyond my understanding. 

[Peregrine]

I read the Bloomberg article.  If the numbers are ball-park on the cash burn, the company will eat up all of the Craftsman proceeds within 2017.  It just seems crazy.  Why the hell would you keep selling off assets to subsidize a failing retailer that just gobbles up all the cash proceeds?  Obviously crazy or beyond my understanding.

 

I don't think you can shut down a retailer just like that, cold turkey. Lampert's strategy has been to monetize the real estate assets but that takes time and the retail operation burns cash.

[HalfMeasure]

I read the Bloomberg article.  If the numbers are ball-park on the cash burn, the company will eat up all of the Craftsman proceeds within 2017.  It just seems crazy.  Why the hell would you keep selling off assets to subsidize a failing retailer that just gobbles up all the cash proceeds?  Obviously crazy or beyond my understanding.

 

I don't think you can shut down a retailer just like that, cold turkey. Lampert's strategy has been to monetize the real estate assets but that takes time and the retail operation burns cash.

 

Exactly, and not all stores are burning cash (even if consolidated results are cash burning). There are explicit costs to shutting down (e.g. severance), so there has to be a cost/benefit analysis to come to a decision.

[ScottHall]

Anyone have a good feel for how Craftsman compares to Kenmore/Diehard as a brand? Wondering if this gives some lookthrough into the value of other brands

 

This Fortune article says that appliance sales at Sears were $4b recently.  Not sure if this is Kenmore exclusively or includes other brands:

 

http://fortune.com/2016/05/26/sears-craftsman-kenmore-diehard/

 

I have to imagine that Kenmore sales were significantly more than Craftsman.  I haven't done any analysis but perhaps there is significant asset value between the remaining brands and company owned real estate. 

 

One thing I've noticed with myself, and perhaps this is true for the entire market, is the ongoing demise of the retail operation really anchors my view.  When you drive by a Sears or K-Mart, you can't help but just shake your head.  The psychology of that makes it really hard to see value, even if it is truly there.

 

Agreed. It's also disconcerting that even if you believe the NAV thesis, time isn't your friend in this case.

 

One thing I will say about Sears is that given all of these big dollar asset sales to finance the company, it's pretty clear to me that the NAV thesis was directionally true. The stock has been an awful investment anyway. There are some good takeaways from that, I think.

[HalfMeasure]

Anyone have a good feel for how Craftsman compares to Kenmore/Diehard as a brand? Wondering if this gives some lookthrough into the value of other brands

 

This Fortune article says that appliance sales at Sears were $4b recently.  Not sure if this is Kenmore exclusively or includes other brands:

 

http://fortune.com/2016/05/26/sears-craftsman-kenmore-diehard/

 

I have to imagine that Kenmore sales were significantly more than Craftsman.  I haven't done any analysis but perhaps there is significant asset value between the remaining brands and company owned real estate. 

 

One thing I've noticed with myself, and perhaps this is true for the entire market, is the ongoing demise of the retail operation really anchors my view.  When you drive by a Sears or K-Mart, you can't help but just shake your head.  The psychology of that makes it really hard to see value, even if it is truly there.

 

Agreed. It's also disconcerting that even if you believe the NAV thesis, time isn't your friend in this case.

 

One thing I will say about Sears is that given all of these big dollar asset sales to finance the company, it's pretty clear to me that the NAV thesis was directionally true. The stock has been an awful investment anyway. There are some good takeaways from that, I think.

 

Yep. Especially when Lampert took the position (pre financial crisis, and when Amazon was ~5% of today's size in terms of sales). I think Lampert got himself stuck on a slippery slope with an illiquid position. While it might feel like an extremely slow liquidation in hindsight, it's hard to fault him for not selling assets from 2007-2009. Then post financial crisis looking back at 2007-2009's erosion in sales, it would have been extremely hard to disentangle what erosion was macroeconomic and would rebound vs. what was structural and would not. Before you know it, FY2011 numbers are trickling in and you've burned a ton of cash in the core business. 2011 is when they announced the Orchard Supply spin, 2012 Sears Hometown and Sears Canada, 2014 Lands' End, 2015 Seritage, and now Craftsman.

 

In hindsight, we can all say we saw threats such as Amazon coming, but this really puts into perspective how quickly and how fiercely Amazon has eaten everyone's lunch.

[Guest longinvestor]

Anyone have a good feel for how Craftsman compares to Kenmore/Diehard as a brand? Wondering if this gives some lookthrough into the value of other brands

 

This Fortune article says that appliance sales at Sears were $4b recently.  Not sure if this is Kenmore exclusively or includes other brands:

 

http://fortune.com/2016/05/26/sears-craftsman-kenmore-diehard/

 

I have to imagine that Kenmore sales were significantly more than Craftsman.  I haven't done any analysis but perhaps there is significant asset value between the remaining brands and company owned real estate. 

 

One thing I've noticed with myself, and perhaps this is true for the entire market, is the ongoing demise of the retail operation really anchors my view.  When you drive by a Sears or K-Mart, you can't help but just shake your head.  The psychology of that makes it really hard to see value, even if it is truly there.

 

Agreed. It's also disconcerting that even if you believe the NAV thesis, time isn't your friend in this case.

 

One thing I will say about Sears is that given all of these big dollar asset sales to finance the company, it's pretty clear to me that the NAV thesis was directionally true. The stock has been an awful investment anyway. There are some good takeaways from that, I think.

 

Yep. Especially when Lampert took the position (pre financial crisis, and when Amazon was ~5% of today's size in terms of sales). I think Lampert got himself stuck on a slippery slope with an illiquid position. While it might feel like an extremely slow liquidation in hindsight, it's hard to fault him for not selling assets from 2007-2009. Then post financial crisis looking back at 2007-2009's erosion in sales, it would have been extremely hard to disentangle what erosion was macroeconomic and would rebound vs. what was structural and would not. Before you know it, FY2011 numbers are trickling in and you've burned a ton of cash in the core business. 2011 is when they announced the Orchard Supply spin, 2012 Sears Hometown and Sears Canada, 2014 Lands' End, 2015 Seritage, and now Craftsman.

 

In hindsight, we can all say we saw threats such as Amazon coming, but this really puts into perspective how quickly and how fiercely Amazon has eaten everyone's lunch.

 

Home depot, Best Buy _ tools, appliances and electronics

Wal-Mart _everything else

Had way more to do with Sears demise than Amazon has. Since the 80's. They built the coffin, Amazon is placing a few nails in it.

[oddballstocks]

Anyone have a good feel for how Craftsman compares to Kenmore/Diehard as a brand? Wondering if this gives some lookthrough into the value of other brands

 

This Fortune article says that appliance sales at Sears were $4b recently.  Not sure if this is Kenmore exclusively or includes other brands:

 

http://fortune.com/2016/05/26/sears-craftsman-kenmore-diehard/

 

I have to imagine that Kenmore sales were significantly more than Craftsman.  I haven't done any analysis but perhaps there is significant asset value between the remaining brands and company owned real estate. 

 

One thing I've noticed with myself, and perhaps this is true for the entire market, is the ongoing demise of the retail operation really anchors my view.  When you drive by a Sears or K-Mart, you can't help but just shake your head.  The psychology of that makes it really hard to see value, even if it is truly there.

 

Agreed. It's also disconcerting that even if you believe the NAV thesis, time isn't your friend in this case.

 

One thing I will say about Sears is that given all of these big dollar asset sales to finance the company, it's pretty clear to me that the NAV thesis was directionally true. The stock has been an awful investment anyway. There are some good takeaways from that, I think.

 

Yep. Especially when Lampert took the position (pre financial crisis, and when Amazon was ~5% of today's size in terms of sales). I think Lampert got himself stuck on a slippery slope with an illiquid position. While it might feel like an extremely slow liquidation in hindsight, it's hard to fault him for not selling assets from 2007-2009. Then post financial crisis looking back at 2007-2009's erosion in sales, it would have been extremely hard to disentangle what erosion was macroeconomic and would rebound vs. what was structural and would not. Before you know it, FY2011 numbers are trickling in and you've burned a ton of cash in the core business. 2011 is when they announced the Orchard Supply spin, 2012 Sears Hometown and Sears Canada, 2014 Lands' End, 2015 Seritage, and now Craftsman.

 

In hindsight, we can all say we saw threats such as Amazon coming, but this really puts into perspective how quickly and how fiercely Amazon has eaten everyone's lunch.

 

Home depot, Best Buy _ tools, appliances and electronics

Wal-Mart _everything else

Had way more to do with Sears demise than Amazon has. Since the 80's. They built the coffin, Amazon is placing a few nails in it.

 

Agreed, Home Depot, Walmart, those places are still full of people.  Our local mall was PACKED at Christmas, Sears parking lot was empty.  People were there in person buying gifts, just not at Sears.

[HalfMeasure]

Agreed, Home Depot, Walmart, those places are still full of people.  Our local mall was PACKED at Christmas, Sears parking lot was empty.  People were there in person buying gifts, just not at Sears.

 

True, but I'm thinking without Amazon Sears would probably still have a slice of the pie. While Home Depot, Walmart, and Best Buy have all done well in spite of Amazon, from a competitive standpoint Sears was a dog 10 years ago too yet had a big slice of pie - Amazon has shrunk the size of the bricks & mortar pie, which put pressure on the marginal player (Sears).

[BTShine]

Speaking of Home Depot...what is everyone's estimate for the amount of Craftsman product that Home Depot will sell in 2020?

 

Once SWK and HD get their agreements, marketing, etc in place what's the per annum sales there?  Currently Ace Hardware is doing around $200 million at cost and maybe $400 million retail?

 

Is anyone outside of the SHLD/SHOS group, besides Ace Hardware, selling large quantities of Craftsman? 

[PLynchJr]

I doubt it amounts to "large quantities" but I've seen Craftsman tool sets at Costco off and on over the last year or so.

[BTShine]

I doubt it amounts to "large quantities" but I've seen Craftsman tool sets at Costco off and on over the last year or so.

 

Great call!  I forgot about Costco.

[BargainValueHunter]

Just a quick reminder that in addition to retail being a b*tch to turn around it makes your job even harder when you are terrible at capital allocation...

 

http://www.chicagobusiness.com/article/20130109/BLOGS10/130109802/sears-is-now-lamperts-company-to-kill

 

Mr. Lampert spent billions of dollars of the company's once-prodigious cash flow in a vain effort to prop up the stock price through share buybacks. Between 2005 and 2011, Sears spent $6 billion on buybacks.

 

Current market cap: $1 billion

 

 

[tylerdurden]

The guys who believe in lampert's strategy to liquidate real estate / other assets while the core ops still burning crazy cash should read this below quote multiple times and reassess whether that's the guy they'd want to follow... Now macy's, other retailers everybody is closing stores. Who is gonna buy all these real estate and what price... He is one crazy dude to me...

 

Mr. Lampert spent billions of dollars of the company's once-prodigious cash flow in a vain effort to prop up the stock price through share buybacks. Between 2005 and 2011, Sears spent $6 billion on buybacks.

 

Current market cap: $1 billion

[doughishere]

What Eddie needs to do right now is buy back shares. Theres only ~15mm shares not in Fairholme or ESL accounts. $150mm is all you need.

 

If he/they believe that the value of the companies RE + whatever else is multiples of the current Mkt.Cap., then what better way to return shareholder value then by buying 20c Dollars (or whatever value you want to insert here)?

[Liberty]

What Eddie needs to do right now is buy back shares. Theres only ~15mm shares not in Fairholme or ESL accounts. $150mm is all you need.

 

If he/they believe that the value of the companies RE + whatever else is multiples of the current Mkt.Cap., then what better way to return shareholder value then by buying 20c Dollars (or whatever value you want to insert here)?

 

Yes, buy back shares (with debt?), maybe squeeze the shorts in the short term, and then keep bleeding hundreds of millions quarter after quarter after quarter as Amazon and other better retailers keep destroying the core business. Great plan.

 

 

Maybe they just need to recapture the magic of Q2 2013...

[Peregrine]

What Eddie needs to do right now is buy back shares. Theres only ~15mm shares not in Fairholme or ESL accounts. $150mm is all you need.

 

If he/they believe that the value of the companies RE + whatever else is multiples of the current Mkt.Cap., then what better way to return shareholder value then by buying 20c Dollars (or whatever value you want to insert here)?

 

It's not rare to have an existing operation bleed cash and lose money, thereby effectively having a negative value, while another operation props it up. With the retail operation losing the amount of money it is currently, it's highly debatable whether the value of the business in total is "multiples" of its current market cap.

[BTShine]

IF this thing turns out like Alexander's, or another multi-bagger magical turnaround, then I'd think any buybacks won't occur until they're in the heart of the life-changing events (closing ~400 stores, selling Kenmore, selling 100 stores, paying off pension debt, etc etc etc).  These activities would become clear to us via press releases and news reports.  That's not the case today.

 

Therefore buybacks today with SHLD's cash are a pipe-dream IMO.  Far down the road they're possible, but not sure if they're likely.

[HalfMeasure]

What Eddie needs to do right now is buy back shares. Theres only ~15mm shares not in Fairholme or ESL accounts. $150mm is all you need.

 

If he/they believe that the value of the companies RE + whatever else is multiples of the current Mkt.Cap., then what better way to return shareholder value then by buying 20c Dollars (or whatever value you want to insert here)?

 

They can't take it private though, can they (since Fairholme is a mutual fund)? So there's a limit to the buybacks.