SHLDQ - Sears Holdings Corp

[biaggio]

http://finance.yahoo.com/news/sears-holdings-elects-paul-depodesta-135000210.html

 

"Sears Holdings (SHLD) announced today the election of Paul DePodesta, vice president of player development and amateur scouting for the New York Mets, to membership on the Sears Holdings board of directors.

"We are pleased to add the strong analytical skills and talent assessment acumen of Paul DePodesta to our board of directors. As Sears Holdings continues the work of transforming and strengthening our company, we look forward to his leadership and contributions," said Sears Holdings Chairman Edward S. Lampert. "Mr. DePodesta's ability to scrutinize data and use it to assess talent and drive execution makes him ideally suited to join our board."

 

I think he is one of the original guys (behind the seen brain)who was involved in developing the money ball in Oakland A's front office. I am not sure how much help he will be.

[schin]

Paul wasn't that great after leaving Oakland for the Los Angeles Dodgers.

[drewdalton]

Here is the latest 13D that ESL has filed with the SEC.  If you scroll down to Item 5 of the document it lays out all of ESL's various funds and partnerships. 

 

http://www.sec.gov/Archives/edgar/data/1310067/000119312512487787/0001193125-12-487787-index.htm

 

According to this filing Eddie, personally, owns 23.47 million shares or 22% of Sears Holdings.  I can see his percentage of ownership increasing as more funds/partnerships get dissolved.  Eddie will take his management fees in SHLD shares and buy shares directly from his partners who elect to sell to him.  If and when SHLD's cash flow improves it will repurchase more of its own shares further increasing Eddie ownership. 

 

Eddie Lampert is in the process of making his transition from a money manager to a businessman.

 

[Parsad]

Eddie Lampert is in the process of making his transition from a money manager to a businessman.

 

Hopefully the business is worth more than the cash it constantly consumes.  I'm very ambivalent about Sears...I see the assets, but I see the burn rate and lackadaisical approach to realizing those assets as cash.  It has to get even cheaper for me to be interested.  Cheers!

[Guest wellmont]

i wonder what Buffett's berkshire transition to investment co. was like? was it more deliberate and defined; or did it meander and seemingly stall out at times, like Lampert's execution at shld?

[plato1976]

yeah, couldn't convince myself to pull the trigger;

 

why Eddie is so low in liquidating ? Does he really believe he can make the machine cash flow positive and then slowly liquidate ?

Why it's a worse strategy to do a quick liquidation and then use the funds to do other more attractive business ?

After all, a retailer turn-around is a very very rare thing , esp. when the paradigm is shifting to e-business for many items

 

i wonder what Buffett's berkshire transition to investment co. was like? was it more deliberate and defined; or did it meander and seemingly stall out at times, like Lampert's execution at shld?

[compoundinglife]

i wonder what Buffett's berkshire transition to investment co. was like? was it more deliberate and defined; or did it meander and seemingly stall out at times, like Lampert's execution at shld?

 

Going off memory from various books that I have not read for quite a while so this might not be entirely accurate, but as I remember it he got the original Berkshire manager out of there and promoted an existing employee (Chase?) that showed promise and took Buffett's direction on cutting costs, this fellow was able to run a pretty tight ship and got them to break even at some point in the late sixties. The manager would from time to time try to get Buffett to buy off on some capex that could improve the operations but Buffett generally turned him down, they paid a dividend at some point after having a good period selling rayon and he offered to trade debt to shareholders who wanted income bearing securities so he wouldn't be pressured into paying anymore dividends. But overall they were able to get it mostly paying for itself and then he killed it when that wasn't possible anymore. That is the gist of story from what I remember. It was different from SHLD in that they were able to stop bleeding but it was also a much smaller ship to steer than SHLD is.

 

So ESL's handling of SHLD is different from WEB's handling of BRK in the early days, but its a different situation too.

 

 

[ItsAValueTrap]

i wonder what Buffett's berkshire transition to investment co. was like? was it more deliberate and defined; or did it meander and seemingly stall out at times, like Lampert's execution at shld?

 

I'm not sure exactly what happened.  Maybe Buffett was done with running a hedge fund/investment partnership and was thinking about what else he was going to do with his life.  It's not like he needed the money any more. 

 

In this interview, Ed Thorp suggests indirectly that Buffett wasn't trying to steer his clients into holding onto Berkshire shares:

http://www.edwardothorp.com/sitebuildercontent/sitebuilderfiles/Interview_with_The_Journal_of_Investment_Consulting_2011.pdf

 

Maybe Berkshire Hathaway became something that he did not originally set out to do.  Munger comments that he took control of Berkshire because he was really pissed that the CEO lied to him about the tender offer.  In Carol Loomis' book, she notes that Berkshire was Buffett's biggest mistake in his career.

 

Since he took control of Berkshire, it made sense for Buffett to allocate its capital since it was his money on the line.  So maybe everything evolved from there...?

[ScottHall]

http://www.newswire.ca/en/story/1087819/sears-canada-announces-sale-of-its-leasehold-interest-in-medicine-hat-mall

 

Sears Canada Announces Sale of its Leasehold Interest in Medicine Hat Mall for $43 million.

 

 

Interesting.  A quick Google search suggests that's just north of $500/ square foot for 82,168 square feet.  Presumably what they sold was the remaining portion of what was probably originally a 99 year lease that would have been signed in about 1979?

 

I would not have guessed that a lease in Medicine Hat would have that much value...

 

SJ

 

Neither would I.  The reason is that I live in the Greater Toronto Area and every major mall has Sears as an anchor.  If a lease in Medicine Hat is worth $40 million imagine what Yorkdale, Sherway Gardens, Upper Canada Mall or even 1 floor at the Eaton Centre would go for!

 

Michael

 

It's an interesting question. Do you have any sense of whether commercial real estate is in as much of a bubble in Canada as residential real estate is? That could explain the high property valuations.

[ItsAValueTrap]

Regarding retailers and Buffett:

 

1- Berkshire Hathaway was a mistake since it took Buffett a long time to realize that it's usually better to buy quality companies at low prices than cigar butts.

 

Suppose it takes 4 years for a cigar butt for the market price to reach intrinsic value.  So you get an 18.9% return if you bought at 50% of intrinsic value.

 

If you bought a really awesome business that compounds at 18.9%/year... you'd come out ahead of buying cigar butts after taxes.

 

Buffett usually buys quality companies that are likely to sustain earnings growth over a long period of time.  The companies that do that typically (A) either have a really great manager who won't quit their job or (B) have some type of durable competitive advantage.

 

2- As far as retailers go, very few of them have a durable competitive advantage.  I think Buffett said that Walmart has an advantage due to its low-costs from the way its infrastructure is set up.  Walmart has very sophisticated warehouses and distribution centers.  It has buyers that scout the world for the best suppliers/products.  So maybe this is something that is very difficult to duplicate... maybe like an ad agency or a major investment bank (other things that Buffett has invested in).

 

Otherwise when you invest in a retailer you are looking at the quality of management.  Buffett (or Berkshire... not sure) owned a retailer very early on.  He quickly realized that retailing is a tough business.

http://books.google.ca/books?id=tU_CAUXWpCsC&pg=PA332&lpg=PA332&dq=Hochschild,+Kohn+and+Co+buffett&source=bl&ots=ixgekMcDlJ&sig=-l9RBfoCPZn2u6W34G393ZRVyAY&hl=en&sa=X&ei=iSDhUJ-cMcjCrQG24oDADg&ved=0CFQQ6AEwBg#v=onepage&q=Hochschild%2C%20Kohn%20and%20Co%20buffett&f=false

 

As far as Sears goes:

a- Bad/average management.  Any retailer without above average management is going to lose.

b- No moat.

 

The economics of the department store business may be bad in the long run.  It is a dying retail format.  Look at every individual department in Sears.  For every department, there is some category-killer store format that is probably doing better than the department store.  For tools, Sears doesn't compete well against the Home Depots.  For clothes, it competes with thrift stores and specialty apparel.  In terms of the big box format (stores with lots of square footage), Walmart seems to be beating out Sears.

And even Walmart may be losing ground against Tractor Supply (TSCO), Rural King, Menard's, etc.  TSCO has sometimes succeeded where Walmart has failed as they have opened small stores in former Walmart locations.  TSCO may not be as good as its private competitors Rural King and Menard's.  Walmart started out as a rural retail phenomenon (they opened city stores later) and people would ask when Walmart would open a store where they lived... take a look at Tractor Supply and Rural King's Facebook pages, they are the new Walmart.  This may be creative destruction at work.

[compoundinglife]

Regarding retailers and Buffett:

 

I don't think anyone here is arguing that retailing or SHLD's retail business is great or has a great moat. I believe Plan posted a quote from Buffett earlier in the thread that reiterates what you said about his thoughts on retailing, his experience with Diversified Retail and his thoughts on competing with Costco and Walmart. He also said something along the lines of "Eddie is a smart guy and won't let it evaporate if it sees it as impossible, he might be able to make things more efficient but he will never be able to compete with Costco and Walmart."

 

 

[bargainman]

As far as Sears goes:

a- Bad/average management.  Any retailer without above average management is going to lose.

b- No moat.

 

The economics of the department store business may be bad in the long run.  It is a dying retail format.  Look at every individual department in Sears.  For every department, there is some category-killer store format that is probably doing better than the department store.  For tools, Sears doesn't compete well against the Home Depots.  For clothes, it competes with thrift stores and specialty apparel.  In terms of the big box format (stores with lots of square footage), Walmart seems to be beating out Sears.

 

Right but Lampert has said that they are 'transforming'.  They are and have closed stores that weren't performing, so I'm sure he knows all the stuff you just stated.  I think the key question is if they are doing it fast enough, and if Lampert is the right guy to lead the transformation, or can attract the talent necessary to do it while not having the negative cash flow melt away what's left of the assets.  Looking at Lampert vs Bezos (who also had a hedge fund background), Bezos was able to attract massive talent and motivate them.  I've heard nothing good about Lampert's ability to actually run a business or attract and motivate talent.  Morale is super low, and most of the talent acquisitions I've seen were questionable.

 

The other thing I haven't seen mentioned but I did see written on several interviews is that Lampert was going to shutter things a lot quicker, but then when he realized the human cost of putting 200K people out of jobs, he made a 180 and decided to give a turnaround a go.  The danger is that he will run out of time/assets before pulling the plug on the turnaround attempt. 

[PlanMaestro]

The other thing I haven't seen mentioned but I did see written on several interviews is that Lampert was going to shutter things a lot quicker, but then when he realized the human cost of putting 200K people out of jobs, he made a 180 and decided to give a turnaround a go.

 

Bargain, do you remember the sources?

[JRH]

The other thing I haven't seen mentioned but I did see written on several interviews is that Lampert was going to shutter things a lot quicker, but then when he realized the human cost of putting 200K people out of jobs, he made a 180 and decided to give a turnaround a go.

 

Bargain, do you remember the sources?

 

I haven't heard Lampert actually talk about this, but Pabrai mentioned it after he sold out of his SHLD position in early 2009.  To paraphrase, he said the liquidation thesis was interesting, but that the employees were standing in between Lampert and the assets.

 

I think this was in a video interview although it is hard to remember specifics like that from 3-4 years ago.

[bargainman]

hmm good question.  I don't remember the specifics to be honest.  I vaguely remember it either being an interview or one of the chairmen letters, or maybe second hand through another investor, either Bruce Berkowitz or Monish.  But i do remember it being more definitive than what a second hand person might know.. I did some googling and could not find it but will post again if I do...

[ItsAValueTrap]

Right but Lampert has said that they are 'transforming'.

Every player in the retail industry is transforming and trying to improve their business.  One sanity check I use is this:

 

Look at every player in that industry.  Try to figure out who the winners and losers will be based on growing the underlying business (you can include non-listed companies).  And try to figure out which stocks will be winners and losers.  By ranking them, you might avoid some biases that you might have if looking at just one stock.  So you might have a winners pile, a losers pile (which should be much larger than the winners pile), and a I don't know pile.

 

In terms of stocks, you might put Dollar General, Walmart, and other Berkshire holdings into the winners pile.  I would put Amazon into the winners pile (though I don't like the stock).  I think it's obvious that Sears should belong in the losers pile.  The stores are depressing, they've been putting up bad numbers for years, etc. 

 

As an asset play, they really need to be monetizing their assets and putting cash into higher-yielding areas.  Berkshire got out of the awful textiles business.  SHLD needs to get out of its bad retail business.  Because it has been very slow in doing so... I don't think that this is a good stock.  I'm not surprised that the short interest is so high.

[texual]

What do you guys think is the rationale behind ESL hiring former board member/interim CEO of Best Buy, G Mike Mikan as the new 'President' of ESL?

 

From BusinessWire; "Mike is a proven business leader who has a great track record of driving operating performance and a diverse background spanning operations, finance and strategy," Edward S. Lampert said. "Mike's background fits with our strategy and he will be a great asset to me and to ESL's portfolio companies."

 

"I have a great deal of respect for Eddie and the world-class investment firm he has built. ESL's philosophy of making long-term investments in companies and working with managements fits with my experience and passion in helping companies grow their businesses and reach their potential through operational excellence," Mr. Mikan said. "I look forward to partnering with Eddie and the team at ESL."

 

 

Interesting. Let's discuss.

[muscleman]

What do you guys think is the rationale behind ESL hiring former board member/interim CEO of Best Buy, G Mike Mikan as the new 'President' of ESL?

 

From BusinessWire; "Mike is a proven business leader who has a great track record of driving operating performance and a diverse background spanning operations, finance and strategy," Edward S. Lampert said. "Mike's background fits with our strategy and he will be a great asset to me and to ESL's portfolio companies."

 

"I have a great deal of respect for Eddie and the world-class investment firm he has built. ESL's philosophy of making long-term investments in companies and working with managements fits with my experience and passion in helping companies grow their businesses and reach their potential through operational excellence," Mr. Mikan said. "I look forward to partnering with Eddie and the team at ESL."

 

 

Interesting. Let's discuss.

 

Does that mean he hasn't given up trying to save SHLD's retail business?

[ShahKhezri]

Some very interesting news out of SHLD tonight.

 

CEO Stepping down and Lampert assuming role: http://finance.yahoo.com/news/hedge-funder-eddie-lampert-taking-011400543.html

 

Updated on Q4:  http://searsholdings.mediaroom.com/index.php?s=16310&item=136558

 

Disclosure: Long SHLD.

[Myth465]

Isnt this bad news / more of the same?

[drewdalton]

What do you guys think is the rationale behind ESL hiring former board member/interim CEO of Best Buy, G Mike Mikan as the new 'President' of ESL?

 

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texual,

 

We now have our answer for ESL's hiring of Best Buy's G. Mike Mikan.

 

[compoundinglife]

What do you guys think is the rationale behind ESL hiring former board member/interim CEO of Best Buy, G Mike Mikan as the new 'President' of ESL?

 

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texual,

 

We now have our answer for ESL's hiring of Best Buy's G. Mike Mikan.

 

I read that as you think he will be handling more of the overhead at the fund to free ESL up to do more at SHLD?

[drewdalton]

compoundinglife,

 

Yes, now that Eddie has taken on the role of SHLD's CEO he will be allocating most of his time to continuing its transformation.  Mike Mikan will take on the role of advising the funds portfolio companies such as GAP.  He, also, will provide Eddie with advice on SHLD. 

 

 

[ShahKhezri]

In some earlier posts I stated that Sears domestic had a real shot of positive comps in Q4, the headline is CEO stepping down, the reality is the numbers are improving.

[ragnarisapirate]

language in the press release seems like he is wanting to split it up, which is what a lot of people have been saying for a while. I just wonder why it's taking so long?

 

Also, what JCP has been doing with their different shops in the store idea is kind of like what could happen with the leases and such in SHLD?