SHLDQ - Sears Holdings Corp

[oddballstocks]

Sears acquired Kmart in Q1, 2005. That means that Lampert has had 12 years to turn around the company, and thus far has not succeeded.

 

12 years is a really long time. I feel like, if there was a plan that was going to work, then the plan would've likely have been found sometime in the previous 12 years. What about the current plan makes you think it's more likely to succeed than not?

 

(I know little about Sears, but just based on failure to find a solution for 12 years would make me put the odds at below 5%. Since you know more about Sears than me, I'm curious what knowledge you have that make you think that that SWAG is wildly wrong.)

 

I think Lampert is in way over his head on this one.  I've been to maybe somewhat over a dozen and half Sears & Kmarts in various locations and states over the past 18 months.  I am not adverse to going into somewhat "dicey" neighborhoods and situations (where some K-marts are).  EVERY SINGLE STORE I'VE BEEN IN has been a disaster of biblical proportions on the bad end to just VERY poorly run in the best case scenario.  Every thing I've seen with my eyes tells me these guys are getting clobbered.  How exactly are they going to make a "comeback"?  Wal-Mart, Meijers, Costco and other competitors are adequately staffed and run...some of them are even above average!  Just how is Kmart-Sears going to beat their competition?  Forget about "beating" them, how about making an honest run at it?  There is simply no way, no way out for them.

 

It is one thing to look at financials & different scenarios from the comfort of your study or office...it is another thing to go out and actually GET INTO these stores.  Of course, maybe the stores in Michigan, Ohio, North Carolina, and W. Virginia are just exceptionally poorly run...but I doubt it.  I am going to guess what I have seen is representative of the company as a hole.

 

If I polled the board, I would shocked if more than 15% has shopped in a K-Mart in the last year.  I would be surprised if more than 25% has shopped out Sears.

 

How many have been to a Wal-Mart, Costco?  I am going to guess well more than half...

 

SHLD is in a death spiral and I simply don't see how common shareholders get anything other than a "0" eventually.

 

Local Sears here in Redding, CA is just as bad. Empty parking lot all the time.

 

I think it's now clear that the bulls were right about Sears. There was a lot of value here. But it was horribly mismanaged and burned away, and now what we're left with is a carcass to be picked at by the vultures.

 

Deep in the comments someone mentioned this as an investment where the retail was on a glide path to zero, and the assets were on a slope to zero as well.  The idea is you're betting that ESL can dump the assets before they glide to zero, that's the entire trade.  The building is on fire and he's trying to get paperwork signed to sell it.  Will he beat the clock?  That's the unknown.  That is the essence of the trade.

 

If he were to sell everything today this could be a winner, but the longer he tries to transform things the more the assets turn into nothing.

 

I have visited our local Kmart (now closed) and Sears.  The Sears was pittiful, empty areas, stuff laying around, a general disaster.  And it's not the location, this is an A mall in the area.  Right next to Sears they renovated everything, there's a Tiffanies, Nordstrom, other high end shops.  Then about 10ft before the entrance to Sears it stops and converts to how it looked in 1992.  It's quite amazing, the mall looks extremely nice until Sears then looks like a dump.  I'm guessing Sears owns their own property and they decided that they didn't want to take part in making their facade look nicer.

 

[rkbabang]

Sears acquired Kmart in Q1, 2005. That means that Lampert has had 12 years to turn around the company, and thus far has not succeeded.

 

12 years is a really long time. I feel like, if there was a plan that was going to work, then the plan would've likely have been found sometime in the previous 12 years. What about the current plan makes you think it's more likely to succeed than not?

 

(I know little about Sears, but just based on failure to find a solution for 12 years would make me put the odds at below 5%. Since you know more about Sears than me, I'm curious what knowledge you have that make you think that that SWAG is wildly wrong.)

 

I think Lampert is in way over his head on this one.  I've been to maybe somewhat over a dozen and half Sears & Kmarts in various locations and states over the past 18 months.  I am not adverse to going into somewhat "dicey" neighborhoods and situations (where some K-marts are).  EVERY SINGLE STORE I'VE BEEN IN has been a disaster of biblical proportions on the bad end to just VERY poorly run in the best case scenario.  Every thing I've seen with my eyes tells me these guys are getting clobbered.  How exactly are they going to make a "comeback"?  Wal-Mart, Meijers, Costco and other competitors are adequately staffed and run...some of them are even above average!  Just how is Kmart-Sears going to beat their competition?  Forget about "beating" them, how about making an honest run at it?  There is simply no way, no way out for them.

 

It is one thing to look at financials & different scenarios from the comfort of your study or office...it is another thing to go out and actually GET INTO these stores.  Of course, maybe the stores in Michigan, Ohio, North Carolina, and W. Virginia are just exceptionally poorly run...but I doubt it.  I am going to guess what I have seen is representative of the company as a hole.

 

If I polled the board, I would shocked if more than 15% has shopped in a K-Mart in the last year.  I would be surprised if more than 25% has shopped out Sears.

 

How many have been to a Wal-Mart, Costco?  I am going to guess well more than half...

 

SHLD is in a death spiral and I simply don't see how common shareholders get anything other than a "0" eventually.

 

Local Sears here in Redding, CA is just as bad. Empty parking lot all the time.

 

I think it's now clear that the bulls were right about Sears. There was a lot of value here. But it was horribly mismanaged and burned away, and now what we're left with is a carcass to be picked at by the vultures.

 

Deep in the comments someone mentioned this as an investment where the retail was on a glide path to zero, and the assets were on a slope to zero as well.  The idea is you're betting that ESL can dump the assets before they glide to zero, that's the entire trade.  The building is on fire and he's trying to get paperwork signed to sell it.  Will he beat the clock?  That's the unknown.  That is the essence of the trade.

 

If he were to sell everything today this could be a winner, but the longer he tries to transform things the more the assets turn into nothing.

 

I have visited our local Kmart (now closed) and Sears.  The Sears was pittiful, empty areas, stuff laying around, a general disaster.  And it's not the location, this is an A mall in the area.  Right next to Sears they renovated everything, there's a Tiffanies, Nordstrom, other high end shops.  Then about 10ft before the entrance to Sears it stops and converts to how it looked in 1992.  It's quite amazing, the mall looks extremely nice until Sears then looks like a dump.  I'm guessing Sears owns their own property and they decided that they didn't want to take part in making their facade look nicer.

 

 

My wife and I actually found and went into a Kmart in New Hampshire about a month ago.  I'm pretty sure this is the first KMart that I walked into since 2001 (I was pissed that they took guns off their shelves after 9/11 and was boycotting them, not that we really shopped there anyway even back then).  The store was a dump, inside and out, even the parking lot is a mess.  There was hardly anyone in there.  They had 1 register open and no line, the cashier was bored and this was on a Saturday afternoon.  We didn't find exactly what we were looking for, so we drove to the Walmart supercenter afterwards and there were literally hundreds if not thousands of cars in the gigantic parking lot. Walmart probably had 20+ registers open, all of them with lines.  My wife did buy something at KMart though and had a coupon on her phone from an email she received.  My wife couldn't figure out how to display the coupon and the cashier said someone else had left that day without making their purchase because they had the same problem.  The cashier had no idea how to get it to display the barcode either.  I finally suggested to her to hit print and see if the print preview showed the barcode (which it did), so the cashier was able to scan it.  We were at the register for about 15 minutes just talking and fooling with my wife's phone, but there was no one else behind us in line, so there was no rush.  There is still a Sears in the Mall of NH in Manchester, but I haven't been there in years, so I couldn't tell you what condition it's in.

 

[LongHaul]

As of July 2017 Sears Inventory is down YOY by ~28% while A/P is down by 50%. 

 

Interesting article on vendors to Sears. 

http://www.reuters.com/article/us-sears-vendors-insight/without-insurance-some-vendors-balk-at-stocking-sears-shelves-idUSKCN1B50E9

 

Might be $6b of asset value and $12b of total liabilities.  (total guess by me)

Plus there are continued operating losses, lease liabilities, etc.

 

What a mess.

[Greyhound]

As of July 2017 Sears Inventory is down YOY by ~28% while A/P is down by 50%. 

 

Interesting article on vendors to Sears. 

http://www.reuters.com/article/us-sears-vendors-insight/without-insurance-some-vendors-balk-at-stocking-sears-shelves-idUSKCN1B50E9

 

Might be $6b of asset value and $12b of total liabilities.  (total guess by me)

Plus there are continued operating losses, lease liabilities, etc.

 

What a mess.

 

$6bn of assets might be a little understated.

 

Here's a view on the valuation of Target's real estate portfolio of 1500 stores and 33 DCs:

 

Based on imputed rents from Target’s owned properties, including 1,500 stores and 33 of its 40 distribution centers, Centerstone’s Deshpande thinks the portfolio could be worth roughly $30 billion.

 

Compare this with Sears' 379 owned stores and 9 owned DCs... ~25%

 

Sears real estate portfolio:

 

735 KMart Stores of which 67 are owned 668 leased

695 Sears stores of which 312 are owned and 382 are leased

 

Before writing off the leases as worthless, a couple of considerations:

 

~255 of these stores are leased from Seritage/JV of which 51 have been recaptured/terminated for which Seritage/JV can then redevelop.

 

Of the remaining leases many of them are ground leases or below current market rate rents leases with long term optionalities.

 

 

That's before other buildings that Sears owns:

 

Our principal executive offices are located on a 200-acre site owned by us at the Prairie Stone office park in Hoffman Estates, Illinois. The complex consists of six interconnected office buildings totaling approximately two million gross square feet of office space. We also own an 86,000 square foot office building in Troy, Michigan.

 

 

[DTEJD1997]

As of July 2017 Sears Inventory is down YOY by ~28% while A/P is down by 50%. 

 

Interesting article on vendors to Sears. 

http://www.reuters.com/article/us-sears-vendors-insight/without-insurance-some-vendors-balk-at-stocking-sears-shelves-idUSKCN1B50E9

 

Might be $6b of asset value and $12b of total liabilities.  (total guess by me)

Plus there are continued operating losses, lease liabilities, etc.

 

What a mess.

 

$6bn of assets might be a little understated.

 

Here's a view on the valuation of Target's real estate portfolio of 1500 stores and 33 DCs:

 

Based on imputed rents from Target’s owned properties, including 1,500 stores and 33 of its 40 distribution centers, Centerstone’s Deshpande thinks the portfolio could be worth roughly $30 billion.

 

Compare this with Sears' 379 owned stores and 9 owned DCs... ~25%

 

Sears real estate portfolio:

 

735 KMart Stores of which 67 are owned 668 leased

695 Sears stores of which 312 are owned and 382 are leased

 

Before writing off the leases as worthless, a couple of considerations:

 

~255 of these stores are leased from Seritage/JV of which 51 have been recaptured/terminated for which Seritage/JV can then redevelop.

 

Of the remaining leases many of them are ground leases or below current market rate rents leases with long term optionalities.

 

 

That's before other buildings that Sears owns:

 

Our principal executive offices are located on a 200-acre site owned by us at the Prairie Stone office park in Hoffman Estates, Illinois. The complex consists of six interconnected office buildings totaling approximately two million gross square feet of office space. We also own an 86,000 square foot office building in Troy, Michigan.

 

If you think the real estate has a reasonable chance of being worth $30BB, then SHLD is one of the biggest bargains in the market and you should "back up the truck".

 

With that being said:

 

A). I don't think there is any reasonable chance that the retail operation is going to be turned around.  Only a question of how long they can hold out.  My guess is that they make it through this Christmas...then the closing accelerate and they file bankruptcy or throw in the towel and liquidate.

 

B). While SHLD does indeed still hold valuable real estate...just how valuable it is the billion dollar question.  If the company enters bankruptcy...the value of the real estate is going down.  They are going to be selling into distressed situation.  Could the value of the real estate be worth LESS than $3BB?

 

SHLD will get the most money selling their real estate piecemeal, here and there.  If the whole portfolio goes up all at once, values will go down.

 

Think about this....Lampert has botched the day to day running of the retail.  He has botched the grand strategy of the company.  Kind of like King Midas in reverse...The company is a mess of biblical proportions.  Will he be able to competently steer the company through the disposition of the real estate?  I would say there is a good chance he does not.

 

Finally, Lampert and others have been making secured loans to the company.  If the company enters bankruptcy, these guys are going to skim the cream off the top and get paid first.  There is a direct conflict now between Lampert & other secured creditors vs. common shareholders.  Then will come the other creditors. 

 

Do you think there is going to be anything left to distribute to the common shareholders?

 

 

[Spekulatius]

They so isn’t that hard. If you like Sears RE, just buy SRG. There is no need to deal with the crap that comes with owning SHLD when you have a clean play like SRG on their best assets.

 

Yes, it is more expensive, perhaps,  but with SRG there no chance that it goes to zero.

[indirect]

Agreed, SRG at the right price

 

[fareastwarriors]

Inside the Decline of Sears, the Amazon of the 20th Century

The latest sign of trouble for the retail icon comes from manufacturers demanding early payment and withholding products

 

https://www.wsj.com/articles/inside-the-decline-of-sears-the-amazon-of-the-20th-century-1509472095

[Greyhound]

Inside the Decline of Sears, the Amazon of the 20th Century

The latest sign of trouble for the retail icon comes from manufacturers demanding early payment and withholding products

 

https://www.wsj.com/articles/inside-the-decline-of-sears-the-amazon-of-the-20th-century-1509472095

 

 

Sears Holdings has responded to the WSJ article.

 

Response to Wall Street Journal

October 31, 2017 by SHC staff

 

Today, the Wall Street Journal reported yet another rehash of inaccurate assertions and negative speculation about Sears Holdings and its future.  It is unfortunate that there are those who continue to root against a company that employs so many people, is important to so many communities, and serves so many members. At this year’s annual meeting of stockholders, we displayed a decade of negative headlines that predicted the imminent demise of our company. Yet we are still here and there are many hardworking Americans whose livelihoods depend on our success.

 

For those interested in our side of the story, Sears Holdings has publicly stated its position on the issues several times through this blog site. We have explained in detail our efforts to close unprofitable stores, negotiate with vendors to reduce their risk in doing business with us, concentrate our investment on our ShopYourWay membership program, and reduce costs throughout our company – all as part of our effort to succeed. In addition, we have directly shared our views with external stakeholders through our Chairman’s letters.

 

We continue to have strong relationships with over 50,000 vendors and suppliers. Any changes to our agreements over the years have been part of the normal discussions between retailers and vendors. While we will not comment on specific terms of our vendor and supplier agreements, the below comments on the Wall Street Journal article are worth considering:

 

In relation to Whirlpool, we were unable to reach an agreement that would have allowed us to offer Whirlpool products to our members at a reasonable price. As a top seller of large appliances in the U.S., Sears Holdings will continue to carry a wide range of products from our own award-winning Kenmore brand, as well as products from LG, Samsung, GE, Frigidaire, Electrolux, and Bosch.

 

We have a long-term relationship with LG and continue to do significant volumes of business under mutually agreed terms. It is common for vendors to offer incentives to retailers for earlier payments. Though unreported, LG specifically told the Wall Street Journal reporter “LG greatly values our relationship with Sears, and is absolutely committed to our strategic partnership long into the future.” This is a sentiment we share.

 

The Wall Street Journal also highlighted that “Levi’s has stopped supplying women’s jeans to Sears”, but failed to mention that we still carry their Men’s and Kids’ jeans and continue to have a great relationship with Levi’s. Incidentally, we stopped carrying Levi’s women’s jeans a few years ago.

 

We will continue to work hard to make our company successful and continue to serve the needs of our millions of members.

 

http://blog.searsholdings.com/inside-shc/response-to-wall-street-journal-2/

 

[KinAlberta]

I've always questioned the view that SHLD has been a big money loser.  However, I'd say that view has been driven by the share price watchers and day traders missing the distributions.  (Note: I missed all but one myself.)  So I thought I'd post this from a CHOU semi-annual report:

 

Bolding is mine:

 

Sears Holdings

In hindsight, our initial assessment of Sears Holdings being worth more than $50 per share a few years ago was most likely too optimistic. This is taking into consideration that we received in excess of $23 per share in distributions from various spin-offs and right offerings, which we later sold in the stock markets. Nevertheless, we believe ..."

 

Source:

CHOU ASSOCIATES FUND CHOU ASIA FUND

CHOU EUROPE FUND CHOU BOND FUND

CHOU RRSP FUND

 

http://choufunds.com/pdf/SEMI-AR%202017%20vF%20%28with%20cover%29.pdf

 

 

 

Note:

 

I barely follow Sears and only because Lampert bought it. (Guru watching/chasing)

 

Myself, I've only traded in and out of SHLD three or four times over say a decade or more and at that only held it for short periods of just a few months (luckily making a small bit of money). That wasn't based on any rational thinking on my part but simply because I believe retail faces incredibly fickle clientele and is hard to turn around at the best of times, plus my long having a negative view on commercial real estate, especially the old retail real estate SHLD owned.  Also I don't now and haven't owned any shares in a few years. Haven't owned any CHOU funds either for a few years.

[benhacker]

for anyone looking to understand the history of SHLD distributions, see here:

 

http://boards.fool.com/ot-searslampert-saga-32780541.aspx?sort=whole

 

ctlr-F -- "howardroark" and read that post.

 

Well worth reading.  Mitigates some of the assumptions, but SHLD common has been a disaster regardless.

 

 

[Ballinvarosig Investors]

for anyone looking to understand the history of SHLD distributions, see here:

 

http://boards.fool.com/ot-searslampert-saga-32780541.aspx?sort=whole

 

ctlr-F -- "howardroark" and read that post.

 

Well worth reading.  Mitigates some of the assumptions, but SHLD common has been a disaster regardless.

The blind faith in Eddie and Bruce somehow rescuing this situation is unreal. Despite the utter failure of the spin-off's and the huge cash burn, I find it amusing that some people still believe that Eddie Lampert is still going to come out of this golden.

 

Eddie had a $15b hedge fund in 2007. If he had just invested in the S&P 500, he'd be sitting on $30b today. What's the value of ESL today, is it even $1b?

[Greyhound]

Eddie just bought another 234,699  shares of Lands End. Bringing his control to 68.5%

 

http://investors.landsend.com/secfiling.cfm?filingid=1193125-17-330339&CIK=799288

[DTEJD1997]

for anyone looking to understand the history of SHLD distributions, see here:

 

http://boards.fool.com/ot-searslampert-saga-32780541.aspx?sort=whole

 

ctlr-F -- "howardroark" and read that post.

 

Well worth reading.  Mitigates some of the assumptions, but SHLD common has been a disaster regardless.

The blind faith in Eddie and Bruce somehow rescuing this situation is unreal. Despite the utter failure of the spin-off's and the huge cash burn, I find it amusing that some people still believe that Eddie Lampert is still going to come out of this golden.

 

Eddie had a $15b hedge fund in 2007. If he had just invested in the S&P 500, he'd be sitting on $30b today. What's the value of ESL today, is it even $1b?

 

I will give Eddie credit where credit is due.  It is almost a miracle he's kept Kmart & Sears running as long as he has.  I've been to many of the stores...and as I've said before, they are ALL a mess.  Some are just bigger messes than others.  You can put a fork in the retail division, they are done.  Just a question of how long it takes to wind down.

 

The only question is if there is enough value in the real estate and the other few assets to provide anything to common shareholders.  I very much doubt that at this point.

[dyow]

I think i was wrong on this stock...i am out

[TwoCitiesCapital]

If we were to really believe Berkowitz resigned because he was successful in his contributions to the board, shouldn't he be buying hand-over-fist at these prices?

 

 

[longlake95]

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." Warren Buffett

 

It's too bad - it's all about the merchandising (FWIW - I'm no retail expert - I just ask consumers), I've asked several millennials if they would shop at Sears and they say: "YES, I they had the stuff I'm looking for - like clothes for 25 year old not an 75 year old."

 

Full credit to Lampert & Co. for the effort they have put in so far.

 

 

[dyow]

For the bears, a lot of you are arguing that if you walk into a sears you should know not to buy the stock.  I think you are mixing up the business with the stock. 

 

The issue with sears is not the stores - because the stores could be put to better use to generate cash flows.  The issue with sears is that fool lampert.  the assets have the value.  But the assets ONLY HAVE VALUE OUTSIDE OF SEARS. Keeping the assets inside of sears burns value.  That is the key to the thesis.  That is why baboon berkowitz keeps talking up the net asset value.  His values are based on what the assets are worth to a viable business outside of sears.

 

But lampert is in the way, but i knew this going in.  He is the catalyst for the stock price, but at the same time he is also the destroyer of the business.

 

I saw some people ask why lampert kept the stores open so long - he kept the stores open for years and took losses because he wanted to get customers on the SYW system.  He wanted to build shopping habits/loyalty/get them hooked so that when they closed the stores later, he would keep these customers on the system.  He keeps on saying that he kept the stores open to save jobs - but he is full of shit....he did it only for SYW.

 

That is why baboon berkowitz called the losses voluntary.  Because these stores could have been closed years ago, redeveloped, and they would be making the company money right now from tenants.  Instead lampert took losses, AND HE SPENT tons of money to build SYW...and SYW is not working - I know SYW it is not working because there is a note in the 10K that shows SSS and the impact from online sales, and online sales are not working.  So Lampert destroyed tons of value through SYW.

 

If you look at SYW, that platform most likely has more value than people think - they have info/access on millions of shoppers - BUT AGAIN IT ONLY HAS VALUE OUTSIDE OF SEARS to a buyer that can make good use of it.  This goes back to the issue, all the assets have value outside of sears.....in a CC the company even mentioned that one or more of their competitors was interested but hesitant to use their home services business because it was still under sears. 

 

If you look at the business - it is terrible on many levels - they don't have a viable business.  The bears are right here.  But the stock price compared to assets is not terrible.

 

But again lampert is in the way.  He has something to prove - I am actually hoping he fails miserably.  I don't like the guy - he is a real douche.  He wants the fame of "transforming" sears - that is why he is doing this this - and he is doing this at the expense of all stakeholders (employees, vendors, shareholders etc). 

 

 

[dyow]

If we were to really believe Berkowitz resigned because he was successful in his contributions to the board, shouldn't he be buying hand-over-fist at these prices?

 

he can't buy...he is getting well deserved redemptions.  I thought the losses stopped for other reasons.

[doughishere]

Bruce blasting out. https://www.sec.gov/Archives/edgar/data/1310067/000091957417007824/0000919574-17-007824-index.htm

 

Sears has a 3 handle now. 

[Marve2013]

Possibly redemptions?

 

Now at $3+ a share,the both of them could easily take it private for very little. I hear there are debt covenants / pension restrictions but surely all that is negotiable?

[Edward]

Pity there is nothing of net value to take private.

[Ballinvarosig Investors]

Bruce blasting out. https://www.sec.gov/Archives/edgar/data/1310067/000091957417007824/0000919574-17-007824-index.htm

 

Sears has a 3 handle now.

At first I thought these were sales that were a result of the Fairholme hedge fund shutting down, but the recent article on that suggests that those shares were distributed to clients rather than sold.

 

This looks like forced selling due to mutual fund redemption's.

[Liberty]

Looks like the equity will soon fit into a Honda Fit.

[Marve2013]

Regarding the forced redemptions, cant Bruce just pay shdrs with the cash buffer ?  Unless he thinks holding on to cash is safer than shld shares at this point. Unless hes also doing then for tax reasons?