SHLDQ - Sears Holdings Corp

[Myth465]

I agree there are risks, but I think the biggest risk is opportunity cost.  I don't see SHLD ever going to zero, the logic for that case just isn't there at this point.  I could see it languish for the next 10 years and at that point in time trade at where it is today.  I could be wrong, but that's how I see it.

 

Flat for 10 years is devastating.  I think value investors tend to emphasize their downside protection too much, believing they are losing nothing if they take a flyer that recovers all their initial investment in the event of a liquidation.

 

That's a 61.4% loss if you otherwise took a more conservative approach and compounded at 10% annualized.

Or it's a 75% loss if you otherwise would have made 15% annualized.

 

Agreed,

 

Some of you all are acting like you havent lost if in 10 - 15 years you get a double.

Patience, is a virtue, but inflation and opportunity costs, are real inmo, but alas Eddie only cares about the long term holders who are willing to wait until hell freezes over....

[goldfinger]

Agreed,

 

Some of you all are acting like you havent lost if in 10 - 15 years you get a double.

Patience, is a virtue, but inflation and opportunity costs, are real inmo, but alas Eddie only cares about the long term holders who are willing to wait until hell freezes over....

 

That's not really true. I sold fast after having bought in 2006-2007. But I am looking at it again and there are signs that things are accelerating now: the amount of closed stores is rapidly increasing, the creation of ubiquity, sears realty and other structures to optimize real estate use, the divesting of non-core businesses and the speed at which the online business is being ramped up and growing, Eddie's selling of other stocks and concentration on SHLD, the behavior of his hedge fund's clients, Eddie insisting on the online business and seeing success in it, etc...

I think this is the kind of situation where things will turn at some point (it could be full liquidation) very quickly.

[goldfinger]

And it is more likely than not that the market is soon going to give us the choice in between holding on or buying other things that are cheaper...  ;D

[goldfinger]

I guess I'm just a skeptic when it comes to Lampert's business acumen

It is good to question and be skeptical but come on! I don't think Lampert did bad for himself over the years. His ability to spot amazing investments in retail and other fields over the years (hi did not stay passive on all investments - Autozone being an example) kind of are a proof that he gets a thing or two about business.  ::)

[Myth465]

Anecdotal investing is dangerous. I think real analysis and an understanding of how the company works is more important in this situation. It seems like most of the posts have been speculation/"analysis" on what Lampert will do and not enough on the numbers and structure of the business. It's obvioulsy very complicated, but ignoring what's difficult (financial analysis) to focus on what's easy (ESL speculation) does not seem like a recipe for success.

 

Another great post.

[texual]

Don't ignore history either. Retail is one of the hardest risk-reward businesses you will find. It either becomes a smash hit or a failure. Except in retail the failure can take years. And in our case, decades. The twilight of a retailer is actually one of the saddest things to see and watch in real time. You know the stores that take years of decline and abuse before finally putting out in a fire-sale and disappear? That is Sears except it started in the early 90's.

 

Ackman once said if you look at the top richest people in the world in every country it is inevitable many of them are there from retailing. If done right, retail is pretty much the best reward you can find in terms of wealth creation. Its why Apple became so successful. If those products were not sold in stores that were that good looking or sold in other places in crummy displays, Apple would be worth a hell of a lot less.

 

Apples success is because of the retail arm, it builds so much trust and confidence in the brand. People like those kinds of experiences.

 

Sears was once like Apple (from a retail perspective).

 

Don't ignore history. Few, actually I would say probably no retailers have come back from a decline especially the magnitude of Sears.

 

 

 

 

I don't see how ShopYourWay rewards is going to save Sears or restore any confidence the company has lost. I think if you guys are looking at SYWR as a viable thing, please re-evaluate. It is a incubator within Sears and is only there to help them drive some data driven analytics and help their supply chain identify products and customer habits. I do not believe this is going to become Amazon.com or even be considered a destination for most Americans who clearly prefer Amazon. There is zero reason to buy from Sears.com when Amazon.com has built online trust for over a decade.

 

 

I was curious about an earlier poster: Did you actually buy anything with that 4 dollar reward email? I get those all the time and they go straight into the trash. It comes off as gimmicky and borderline harassing. I consider myself very interested in the success of their online business but that points reward thing is desperate.

[Luke 532]

I agree there are risks, but I think the biggest risk is opportunity cost.  I don't see SHLD ever going to zero, the logic for that case just isn't there at this point.  I could see it languish for the next 10 years and at that point in time trade at where it is today.  I could be wrong, but that's how I see it.

 

Flat for 10 years is devastating.  I think value investors tend to emphasize their downside protection too much, believing they are losing nothing if they take a flyer that recovers all their initial investment in the event of a liquidation.

 

That's a 61.4% loss if you otherwise took a more conservative approach and compounded at 10% annualized.

Or it's a 75% loss if you otherwise would have made 15% annualized.

 

Agreed,

 

Some of you all are acting like you havent lost if in 10 - 15 years you get a double.

Patience, is a virtue, but inflation and opportunity costs, are real inmo, but alas Eddie only cares about the long term holders who are willing to wait until hell freezes over....

 

Just to be clear, I did say it was an opportunity cost (inflation, missing other investments, etc.) and I didn't say that was an insignificant cost.  It's just that given the upside, if the primary downside risk is opportunity cost... well, that is very attractive to me.  If I had to pick, opportunity cost would be the most desirable of all potential risks when I look at an investment.

[muscleman]

Luke5:32, since you have done so much research on SHLD, could you please share with us some of your anaylsis on the guarantor and non-guarantor subs, and outline what would happen to the assets in a nightmare scenario?

[BTShine]

Don't ignore history either. Retail is one of the hardest risk-reward businesses you will find. It either becomes a smash hit or a failure. Except in retail the failure can take years. And in our case, decades. The twilight of a retailer is actually one of the saddest things to see and watch in real time. You know the stores that take years of decline and abuse before finally putting out in a fire-sale and disappear? That is Sears except it started in the early 90's.

 

Ackman once said if you look at the top richest people in the world in every country it is inevitable many of them are there from retailing. If done right, retail is pretty much the best reward you can find in terms of wealth creation. Its why Apple became so successful. If those products were not sold in stores that were that good looking or sold in other places in crummy displays, Apple would be worth a hell of a lot less.

 

Apples success is because of the retail arm, it builds so much trust and confidence in the brand. People like those kinds of experiences.

 

Sears was once like Apple (from a retail perspective).

 

Don't ignore history. Few, actually I would say probably no retailers have come back from a decline especially the magnitude of Sears.

 

 

 

 

I don't see how ShopYourWay rewards is going to save Sears or restore any confidence the company has lost. I think if you guys are looking at SYWR as a viable thing, please re-evaluate. It is a incubator within Sears and is only there to help them drive some data driven analytics and help their supply chain identify products and customer habits. I do not believe this is going to become Amazon.com or even be considered a destination for most Americans who clearly prefer Amazon. There is zero reason to buy from Sears.com when Amazon.com has built online trust for over a decade.

 

 

I was curious about an earlier poster: Did you actually buy anything with that 4 dollar reward email? I get those all the time and they go straight into the trash. It comes off as gimmicky and borderline harassing. I consider myself very interested in the success of their online business but that points reward thing is desperate.

 

Last week I used the $9.99 oil change, and the $4 coupon to get a $5.99 oil change at my local Sears Auto.  Other than that, I haven't use the $4 rewards emails before. 

 

But, we should remember that I'm an investor and strive to be more rational than the typical shopper (I read books like Montier's Little Book of Behavioral Investing for fun), so this $4 gimmick was never likely to work on me.  I'm not even Sears' target Shopper (I shop at Nordstrom, J. Crew, Bonobos and my country club...no coupons there) and signed up for SYWR just to learn more about SHLD.  But, I've been around a lot of people, for some reason women stand out (Mother, sister, girlfriends, friends, etc.), in my life that love to get a 'deal' even if they aren't really getting a good price.  Lot's of people love to feel like they're getting a discount..."I saved $50 on this pair of jeans!"  Anyone that studied the JCPenney fiasco understands how much people love discounts (even if they are really getting a worse price).  JCP took away the discounts, and lowered the final price, but the customers left. 

 

So, Texual you are right.  The emails are gimmicky.  I see that.  You see that.  But, there are over 300 million other Americans and many of them love a gimmick. 

[texual]

I also was about to cringe when I sent that post realizing you/us/we are NOT the target demographic and may be a tad too smart for our own good ;)

 

Agreed that if I had an oil change coming up and I knew 4 bucks were easily available I would use it for that. But in no way are we going to jump up and down for 4 bucks and shop on their website for trinkets. 

 

But I really would like to know what kind of things they are learning from this particular experiment.

 

Ron Johnson didn't listen to anyone when he was told to test the no coupon 'fair and square' pricing in a few stores. He didn't do the necessary pilot or data analysis. ESL from what I can tell is nothing but a data analyst at the granular level. He won't do anything outside a incubator test before he puts the gas pedal on the floor. I appreciate that our leadership is invested in being super conservative about decisions.

[Guest hellsten]

They are actually very clear about what their strategy is for SHLD.  I think they keep saying it again, and again, and again, and again, and yet people still say "investors want Eddie to stop being secretive".

 

I agree, Sears' business strategy is pretty clear. Perhaps that's why Wall Street hates Sears so much and thinks Eddie Lampert is a failure. They see the strategy and compare Sears to Amazon and Lampert to Bezos. They don't see any hidden value or growth in revenue or profits, and believe it's a failed strategy.

 

Eddie's strategy is unconventional, which is the definition of strategy to some degree, compared to JCP's strategy which was conventional and failed miserably.

 

The following are some of the secrets that I would like to know:

1) true earnings power of Sears once Sears/Kmart shut down money-losing stores (Wall Street doesn't seem concerned about this)

2) what value is left to shareholders, including Eddie, in a bankruptcy (I'm not very concerned about this)

3) value of real estate, brands, etc

4) how long is Eddie's patience (opportunity cost)

 

Eddie is not going to tell us because that's his investing strategy:

He points to three role models that together may say more about where he's going than any retail initiative he might float: Bob Rubin, who claims that the best decision-makers keep their options open until the last reasonable moment; Bill Belichick, the coach of the New England Patriots football team, who befuddles and outwits his opponents by constantly adjusting the game plan; and Warren Buffett, who turned from investor to business builder by acquiring operations at good prices and rearranging the cash flow, in many cases to invest elsewhere. "The entrance strategy is actually more important than the exit strategy," Lampert says.

 

I think his patience (8 years?) is one of the reasons why Wall Street hates him. There's some real proof that Eddie's patience is coming to an end and that "the last reasonable moment" of keeping unprofitable stores is near, perhaps even according to GAAP.

 

He once said:

"I want to be known as a great businessman"

 

and:

 

worries about dying young like his dad did

 

He's now CEO…

 

There are lots of anecdotal evidence, so for me it's a question if I trust my money with Eddie Lampert given his track record and what I know about him, Sears, and Mr. Market. I don't think Eddie is crazy, but he's clearly no visionary like Bezos.

 

I understand some people avoid Sears because of opportunity cost, but I haven't heard any good arguments why it should be applied to Sears at this point. Opportunity cost was a very good argument between, for example, 2004-2011 given what we know about Eddie's patience and strategy.

 

What I also don't understand is why anyone would short Sears or Eddie Lampert at this point. To me it seems stupid to short someone who:

- is intelligent on the level of Warren Buffett, Michael Burry, Ted Weschler, etc

- has the resources and friends in the right places

- likes to "befuddle and outwit his opponents"

[Luke 532]

Luke5:32, since you have done so much research on SHLD, could you please share with us some of your anaylsis on the guarantor and non-guarantor subs, and outline what would happen to the assets in a nightmare scenario?

 

I am still working on this myself.  This is arguably the toughest part of any analysis on SHLD as it involves what would happen in the case of bankruptcy and how that plays out from a legal perspective.  I would be interested if anybody on this message board has experience in bankruptcy law that might be able to chime in on this. 

 

Until that time of what would happen becomes clear (if it ever becomes clear), I would imagine that Lampert structuring the company in this manner is beneficial to us (Lampert and shareholders interest being aligned).

[Vish_ram]

What I also don't understand is why anyone would short Sears or Eddie Lampert at this point. To me it seems stupid to short someone who:

- is intelligent on the level of Warren Buffett, Michael Burry, Ted Weschler, etc

- has the resources and friends in the right places

- likes to "befuddle and outwit his opponents"

 

I think shorts argument goes like this;

 

a) Think of Mike Tyson competing not in Boxing, but in Chess. Lampert as a retailer is not same as Lampert the investor. With almost a decade at the helm, there is no turnaround in sight.

b) He installed a lot of Puppet CEO's and controlled from behind

c) he likes to..., but has he done it so far in SHLD?

 

My Q's are

1) If I consider the "shop your way" as one co, and attribute revenues, costs and expenses, will that company be profitable?

2) Has any big department stores ever achieved profitability by shrinking?

3) Has any retailer with diminishing sales survived by cutting store upgrades and spending money on technology?

4) What big retailer (not boutique ones) has changed their strategy and thrived?

 

Seriously, people talk about Sears strategy? what is sears's strategy? I can understand their tradeoffs, but is it giving them competitive strength/profitability/increasing sales? I can order from walmart/countless others online and pick it up in store (how is Sears integrated retailing any different? ). Sears has unique brands, but what use is a brand when customers are not willing to pay a premium?

 

A strategy should be embedded into their operations. Consider Aldi, they got the low cost, bare bones structure into every aspect of their operation to an art form.

 

How unique is this shopyourway website? What does it offer that other competitors don't?

 

 

[bobp]

Forbes - "Sears' New Internet Strategy: Late to the Party....Again"

 

http://www.forbes.com/sites/walterloeb/2013/08/19/sears-late-to-the-party-again/

 

"The theory is that Sears is a company with very valuable real estate – but is there value if the customer traffic is non-existent and the sales productivity is low?"

[mcliu]

Luke5:32, since you have done so much research on SHLD, could you please share with us some of your anaylsis on the guarantor and non-guarantor subs, and outline what would happen to the assets in a nightmare scenario?

 

I am still working on this myself.  This is arguably the toughest part of any analysis on SHLD as it involves what would happen in the case of bankruptcy and how that plays out from a legal perspective.  I would be interested if anybody on this message board has experience in bankruptcy law that might be able to chime in on this. 

 

Until that time of what would happen becomes clear (if it ever becomes clear), I would imagine that Lampert structuring the company in this manner is beneficial to us (Lampert and shareholders interest being aligned).

 

+1 muscleman

 

Would also be nice to get some details on the reinsurance sub.

 

A theoretical consideration for Sears' holders: how is this different from speculating if we don't know how these key components work?

[wisdom]

The difference with Walmart and sears online is:

- In Walmarts case you have to wait for a week or more to pick up your order.

- SHLD is working on you being able to pick up your order within minutes of ordering it online - so far no one that I know is doing this. Eddie calls this integrated retail.

 

The way I see value investing -

buy something with enough margin of safety with a management that does not destroy capital and something good might happen. Eddie has enough incentive to make it work and is a stand up guy.

 

You can only have 20/20 vision in hindsight. Decision making involves a lot of unknowns and it is upto an individual to decide what is knowable and what isn't.

 

All the discussion I have read about BAC and BRK is in hindsight and looks obvious. If it was that obvious why didn't the whole world buy into it.

 

SHLD may or may not work out but it will not be due to the CEO not trying as he is adapting to the new reality. At least, he is trying and he has a margin of safety that buys him time. It gives him options and he saw the reality much earlier than most retailers. He stopped investing in stores. He has stated that he believes there is an over supply of retailers. Thus, he isn't throwing good money at the stores, but, is looking at alternatives to retail for the unprofitable stores. I would rather invest with a guy who is adapting to the new reality rather than burying his head in the sand.

[CorpRaider]

Also, with walmart you have to go to walmart.

[Luke 532]

I’m going to offer up a perspective rooted in behavioral investing (by the way, whoever mentioned Little Book of Behavioral Investing by Montier earlier, it is one of the two books I first recommend to people when they ask me about investing, the other being The Intelligent Investor, of course).

 

We have a share price of $40.  Most that are invested in SHLD have a cost basis above that (myself included), some far above $40.

 

Question to ask yourself honestly: if the stock were trading at, say, $100-$150 (given an argument can be made that this is roughly the liquidation value of the company), would you be having the doubts you have today?  If the answer is “no,” why?

 

We all are fairly confident that 75%+ of the shares owned by Lampert/ESL, Berkowitz/Fairholme, Tisch, and maybe a few others (Chou, Baker Street, etc.) are not planning on selling anytime soon.  And they make up a huge percentage of ownership.  So, if they’re not selling, then who is influencing the stock price on a day-to-day, week-to-week, month-to-month, and even a year-to-year basis?  Smaller investors and/or traders making up 20-25% of the share count.

 

The point I’m trying to make is to not place too much importance on the current stock price.  Traders and “weak hands” make up roughly 20-25% of the outstanding shares.  Logically speaking, should we listen to Mr. Market when he makes up that small percentage of ownership, and is clearly confused as the stock price range has been roughly $40-$80?  No, it doesn’t make sense.

 

Remove short-term investors and traders from the equation and where do you think the stock would be?  And then ask yourself if value investing is a short-term or long-term discipline.

 

While you’re thinking about that, consider the quote below from Lampert:

When I propose one popular speculation -- that if improved operations don't get the stock moving soon, he will begin selling off more real estate and maybe even Sears house brands like Craftsman -- he laughs, simply saying, "No."

http://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert/index.htm

 

When’s the last time you read about Lampert laughing?  Sounds like it’s preposterous in his mind to let a stock price force one’s hand.  Especially if that stock price is influenced in the short-term by people that are in it for a trade or are “investing” with a short time horizon.

 

[muscleman]

Luke5:32, since you have done so much research on SHLD, could you please share with us some of your anaylsis on the guarantor and non-guarantor subs, and outline what would happen to the assets in a nightmare scenario?

 

I am still working on this myself.  This is arguably the toughest part of any analysis on SHLD as it involves what would happen in the case of bankruptcy and how that plays out from a legal perspective.  I would be interested if anybody on this message board has experience in bankruptcy law that might be able to chime in on this. 

 

Until that time of what would happen becomes clear (if it ever becomes clear), I would imagine that Lampert structuring the company in this manner is beneficial to us (Lampert and shareholders interest being aligned).

 

Please let me know if there is any work that we can split. I am a part time investor so I don't have that much time, but anything is better than nothing, I believe.

[BTShine]

I also was about to cringe when I sent that post realizing you/us/we are NOT the target demographic and may be a tad too smart for our own good ;)

 

Agreed that if I had an oil change coming up and I knew 4 bucks were easily available I would use it for that. But in no way are we going to jump up and down for 4 bucks and shop on their website for trinkets. 

 

But I really would like to know what kind of things they are learning from this particular experiment.

 

Ron Johnson didn't listen to anyone when he was told to test the no coupon 'fair and square' pricing in a few stores. He didn't do the necessary pilot or data analysis. ESL from what I can tell is nothing but a data analyst at the granular level. He won't do anything outside a incubator test before he puts the gas pedal on the floor. I appreciate that our leadership is invested in being super conservative about decisions.

 

A big reason I used Sears Auto for the oil change was just to experience it.  See how I liked it.  To watch how other customers were behaving (were they buying?, using points?, etc.). 

 

One advantage I see from the SYWR program relates to weekly inserts, mailings, etc. that they don't need to mail anymore!  Historically the departments stores sent out coupons, etc. in local newspapers.  That is expensive (printing, mailing costs) and is somewhat inefficient since you're using a blanket advertising approach.  IF they're able to get the attention of shoppers, which I believe SYWR points gets the attention of most SHLD shoppers (though this is obviously a debatable point on this msg board), then Sears can reduce/eliminate the weekly inserts and focus their $$ on targeted emails to proven customers with $4+ free money (that expires in 1 week...of course  :D).  This is what excites me about SYWR.  People now have a reason to open the emails that Sears sends. 

 

These customers will feel great after using their $4+ free money and any other coupons they have (it's the thrill of the deal!  This is like us buying BRK.A at $100,000/share...it sends a rush of excitement through your body).  Now these customers will pay attention to future emails because they think there's value in them.  That's is a huge key to this strategy -- customers paying attention to the emails. 

[Guest wellmont]

yet another new low. where oh where is Eddie? :)

[T-bone1]

yet another new low. where oh where is Eddie? :)

 

If you are referring to when Eddie might buy more shares, I'm sure he is in a blackout period currently due to the proximity of the earnings announcement.

 

Berkowitz on the other hand reopened his fund today . . . I wonder how much new cash he will take in today. . .

[muscleman]

yet another new low. where oh where is Eddie? :)

 

If you are referring to when Eddie might buy more shares, I'm sure he is in a blackout period currently due to the proximity of the earnings announcement.

 

Berkowitz on the other hand reopened his fund today . . . I wonder how much new cash he will take in today. . .

 

Is there any mutual fund restriction that would prevent Berko from loading too many SHLD shares?

[T-bone1]

none that I know of . . . he owns less than 20% of SHLD and owns ~27% of JOE if memory serves correctly.  I thought there was a regulation on putting more than 25% of his fund into one stock, but I believe he exceeded that with AIG.

[constructive]

Question to ask yourself honestly: if the stock were trading at, say, $100-$150 (given an argument can be made that this is roughly the liquidation value of the company), would you be having the doubts you have today?  If the answer is “no,” why?

No, I wouldn't have any doubt. If it traded at $150 I would short it.

 

When I propose one popular speculation -- that if improved operations don't get the stock moving soon, he will begin selling off more real estate and maybe even Sears house brands like Craftsman -- he laughs, simply saying, "No."

http://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert/index.htm

Yet he has sold lots of real estate at an accelerating pace, and has segregated KCD assets, and licensed Craftsman to Ace Hardware. Watch what he does, not what he says.