SHLDQ - Sears Holdings Corp

[Liberty]

edit: I started reading & posting when SHLD was at around $42.50, I swear I didn't do anything.  ;D

 

I was going to ask about that :D

[cubsfan]

I'm not sure why the squeeze topic isn't relevant.

 

I'm not counting on it - but appears to be a possibility.

If I were a short seller - I'd sure avoid SHLD as a candidate.

 

That said, I've owned SHLD off and on for over 4 years now - and have seen it a couple times.

 

In March 2009, SHLD was in 30's, only to run up to $120+ in 14 months - since the

company was generating positive free cash flow, and perhaps housing looked better.

 

In January 2012, again SHLD was $29, only to run up to $80 in 90 days - on the Lampert inside buys.

 

So just about any significant positive news can create the scramble to cover.

 

And I think Merkhet has rightly pointed out that the ownership conditions have gotten even stronger.

 

Of course, I'm talking my book since I believe the story that the assets offer some protection,

and that's really why I own it.

[CorpRaider]

Timely comments guys.  hah.  They can carry losses forward 20 years, dunno if they can generate operating profits by then.  Obviously, the "asset light sears" subs could have booked lots of net income last quarter, if it was stand alone and the figures didn't change. 

[merkhet]

 

At the risk of being one of the people that's viewed as harping on the same thing over and over again, I've put together some more numbers in my spreadsheet -- and there seems to be something fishy going on here.

 

(https://docs.google.com/spreadsheet/pub?key=0ArX667iB-WCRdFZRMEl4T29EQnRmUTZueE1XY09nSWc&single=true&gid=0&output=html)

 

---

 

I added Fine Capital Partners, Akre Capital Management & GoodHaven Capital Management.

 

Fine Capital Partners -- looks like Debra Fine managed money for Laurence Tisch and began accumulating shares in Sears starting in 3Q 2011 and has added to it every quarter since then -- http://whalewisdom.com/filer/fine-capital-partners-l-p#

 

Chuck Akre sounds like a long-term holder as well -- http://www.akrefunds.com/media/pdfs/042612_AKREX_Transcript.pdf

 

I think people are pretty familiar with GoodHaven here.

 

---

 

Anyway, this struck me as incredibly interesting, so I thought I would share it with you fine people...

 

 

Add the ETFs which do not sell SHLD. They adds up to at least 5 Million. You get 97 Million long term holders.

 

 

I'm not sure you can count on the ETF holders to be static holders. For instance, let's say that a particular ETF is market-weighted. In that case, it acts in a pro-cyclical manner. If SHLD does poorly, they hold less of it. If SHLD does well, they hold more of it.

 

Therefore, I haven't added them to the spreadsheet.

[T-bone1]

Index/ETFs will hold the same amount of shares regardless of price I think - the price swings of the shares they own will keep the market rate in line with the prescribed index

[merkhet]

 

Index/ETFs will hold the same amount of shares regardless of price I think - the price swings of the shares they own will keep the market rate in line with the prescribed index

 

 

Depends on how the ETF is constructed. I have little to no inclination to read all those prospectuses to find out if that's the case. If someone here wants to do it and report back, however...  :)

 

To be clear, it's possible that some % of the ETF holdings could be static. I have no idea how to measure the percentage though -- I can't even figure out a range for the %. Therefore, I've decided to leave it alone.

[merkhet]

I must say that I'm surprised at the negativity on this thread.

 

While it probably shouldn't be the primary factor motivating an investment, I would say that ownership and shares short are an interesting ancillary point to consider in an investment like Sears.

 

Here is a (non-exhaustive, obviously) list of other things that make Sears interesting:

 

(1) The reversal of $600 million in pension liabilities based on a 1% increase of rates that will show up in the 4th quarter.

(2) The backloaded remainder of the $200 million of expense reduction that Mr. Lampert has promised to deliver.

(3) The fact that, very soon, Sears Holdings will no longer be comparing things year-over-year with a Sears Holdings that included Sears Hometown because SHOS was spun out in October 2012.

[alertmeipp]

I must say that I'm surprised at the negativity on this thread.

 

While it probably shouldn't be the primary factor motivating an investment, I would say that ownership and shares short are an interesting ancillary point to consider in an investment like Sears.

 

Here is a (non-exhaustive, obviously) list of other things that make Sears interesting:

 

(1) The reversal of $600 million in pension liabilities based on a 1% increase of rates that will show up in the 4th quarter.

(2) The backloaded remainder of the $200 million of expense reduction that Mr. Lampert has promised to deliver.

(3) The fact that, very soon, Sears Holdings will no longer be comparing things year-over-year with a Sears Holdings that included Sears Hometown because SHOS was spun out in October 2012.

 

You missed one important one.

 

500 millions+ transaction to enhance liquidity.

[muscleman]

I must say that I'm surprised at the negativity on this thread.

 

While it probably shouldn't be the primary factor motivating an investment, I would say that ownership and shares short are an interesting ancillary point to consider in an investment like Sears.

 

Here is a (non-exhaustive, obviously) list of other things that make Sears interesting:

 

(1) The reversal of $600 million in pension liabilities based on a 1% increase of rates that will show up in the 4th quarter.

(2) The backloaded remainder of the $200 million of expense reduction that Mr. Lampert has promised to deliver.

(3) The fact that, very soon, Sears Holdings will no longer be comparing things year-over-year with a Sears Holdings that included Sears Hometown because SHOS was spun out in October 2012.

 

Regarding the 3rd point, SHOS is making money, so spinning it off will make SHLD report less, right? Though the impact is quite small.

[merkhet]

 

 

I must say that I'm surprised at the negativity on this thread.

 

While it probably shouldn't be the primary factor motivating an investment, I would say that ownership and shares short are an interesting ancillary point to consider in an investment like Sears.

 

Here is a (non-exhaustive, obviously) list of other things that make Sears interesting:

 

(1) The reversal of $600 million in pension liabilities based on a 1% increase of rates that will show up in the 4th quarter.

(2) The backloaded remainder of the $200 million of expense reduction that Mr. Lampert has promised to deliver.

(3) The fact that, very soon, Sears Holdings will no longer be comparing things year-over-year with a Sears Holdings that included Sears Hometown because SHOS was spun out in October 2012.

 

 

You missed one important one.

 

500 millions+ transaction to enhance liquidity.

 

 

I would also note that Sears still has $500 million left on its authorized buyback program without an expiration fate. Not sure if the $500 million dovetails with the liquidity target or not.

 

 

 

I must say that I'm surprised at the negativity on this thread.

 

While it probably shouldn't be the primary factor motivating an investment, I would say that ownership and shares short are an interesting ancillary point to consider in an investment like Sears.

 

Here is a (non-exhaustive, obviously) list of other things that make Sears interesting:

 

(1) The reversal of $600 million in pension liabilities based on a 1% increase of rates that will show up in the 4th quarter.

(2) The backloaded remainder of the $200 million of expense reduction that Mr. Lampert has promised to deliver.

(3) The fact that, very soon, Sears Holdings will no longer be comparing things year-over-year with a Sears Holdings that included Sears Hometown because SHOS was spun out in October 2012.

 

 

Regarding the 3rd point, SHOS is making money, so spinning it off will make SHLD report less, right? Though the impact is quite small.

 

 

The sales impact is likely larger than the margin impact here. I think Sears Hometown runs a 2% net margin currently. I believe that many people are reacting to a 6% sales drop which includes the impact from Sears Hometown being spun out. Additionally, I think there were costs associated with the spin out that will compare favorably this quarter.

[bookie71]

A for what it is worth comment;

My wife is looking for an new washer and dryer.  She went to Sears because of the way they serviced and replaced our oven a about a year ago ( The one delivered was defective and replaced without a question).

She is now looking at Home Depot and Lowes as Sears wants 69.50 to deliver each unit and take away the old units (139.00 for 2) -installation extra. (139.00 for 2).  Lowes and Home Depot do it for free.

[TwoCitiesCapital]

Hi guys,

 

I'm new to following the Sears story but the case for its real estate is compelling. My understanding is that EL is slowly shrinking the company and focusing online to monetize real estate assets and move to a more profitable retail strategy.

 

My question is as follows: if he's been liquidating properties since 2011, and each property sold results in increased cash and decreased liabilities, then their should have been value accruing to shareholders for the past two years either through increased equity in the co or through dividends. I'm seeing that equity has fallen by 6.3B between Feb 2010 and Feb 2013, mostly from increasing liabilities and continuous operating losses eroding retained earnings. I'm not seeing any build up in cash, massive dividends, or any reason to believe this activity has resulted in profit or value creation for the last two years. Is this just because EL has been reinvesting the proceeds? At what point does he cut losses and liquidate the co?

 

Arguably,  the asset value is there. What argument is there for shareholders ever seeing it if the last two years didn't "pay any dividends?"

 

Just bringing this back to the front since it was 4 pages ago without answers. Let me know how you guys feel about this - just seems hard for me to believe the value unlocking story if value hasn't already begun to be unlocked.

[CorpRaider]

They will likely never pay a cash dividend (you can probably guess why or google warren buffett dividends), they might spin you a REIT or some retail subs, maybe some lands end or an IP entity though, if the bulls are right.  They were buying back stock before things went off course, there was a time when everything was looking like AZN part demux, before the creditmaggedon.  ESL would likely argue they are now redeploying cash into investment in SYWR and the interwebs...others might argue the operations went into the toilet from an EBITDA and operating earnings perspective thus crappy retail operations are now tying up/eating the cash formerly directed to buybacks. 

[Rabbitisrich]

They will likely never pay a cash dividend (you can probably guess why or google warren buffett dividends), they might spin you a REIT or some retail subs, maybe some lands end or an IP entity though, if the bulls are right.  They were buying back stock before things went off course, there was a time when everything was looking like AZN part demux, before the creditmaggedon.

 

I don't clearly remember Buffett's discussion, but didn't he compare repurchase decisions to the whole universe of alternative capital allocation? If so, that's very different from a buyback vs. dividend argument. A dividend gives you the same % ownership + pile of cash. Given a buy back, you can return to your same % ownership by exchanging your excess shares for a pile of cash. So claiming that a dividend is better than a buy back at overvalued prices is the same as claiming that your Pile Of Cash will be greater in one case than the other. Maybe, but it would be due to trade execution and market volatility issues rather than directly related to over/under valuation. In fact, valuation aside, you can see how an upward market would give you a greater Pile Of Cash in the buy back scenario if you simply defer your sale. The buyback vs. dividend debate is not a valuation issue except to the extent that valuation affects price volatility.

[Rabbitisrich]

Another way to think of it is to remember that you can borrow against your impeding dividend to finance a stock buy back. So a dividend program is related to a buyback program by your financing costs and the value of your trade execution. The valuation of the stock is not a direct factor.

[krazeenyc]

I'm sure the bears will flame this post as it is very speculative and just a thought -- most likely posted b4.

 

I think it is important to consider the motivation of management.  For the majority of managements they benefit when earnings are better (GAAP), or revenues are boosted, or whatever metric is used to boost their compensation. Back when Eddie Lampert first took over Kmart and then Sears the thesis was that he wanted to spin off the real estate assets, possibly into a REIT.  The biggest impediment to that was the fact that they would have to purge retained earnings via a dividend (2 years ago they would've had to pay a $3.5+ billion dividend to shareholders).  Well, they've had over $4 billion of GAAP losses over the last couple years, and will soon be able to spin off a REIT without paying a dividend.

 

Over the past 2 years, they've contributed $850 million plus in cash to the pension which permitted them to offer pensions settlement that allowed them to further take a non-cash $452 million charge (related to their pension), a $1.8 billion loss related to writing down a DTA, as well as $1 billion writedown in goodwill.  They've also accelerated store closings costing $500 million.    Sure seems that they are trying to get hugely negative GAAP earnings.

 

By the way, they hired David Lukes in May 2012 to run Seritage Realty Trust (Seritage.com was purchased on May 18th 2012) . 

 

Of course, even with the REIT spin off, there is no guarantee that they will be able to effectively monetize their 18  million + sq foot of real estate.

 

Sears bears -- bash away. :D

[ERICOPOLY]

They will likely never pay a cash dividend (you can probably guess why or google warren buffett dividends), they might spin you a REIT or some retail subs, maybe some lands end or an IP entity though, if the bulls are right.  They were buying back stock before things went off course, there was a time when everything was looking like AZN part demux, before the creditmaggedon.

 

I don't clearly remember Buffett's discussion, but didn't he compare repurchase decisions to the whole universe of alternative capital allocation? If so, that's very different from a buyback vs. dividend argument. A dividend gives you the same % ownership + pile of cash. Given a buy back, you can return to your same % ownership by exchanging your excess shares for a pile of cash. So claiming that a dividend is better than a buy back at overvalued prices is the same as claiming that your Pile Of Cash will be greater in one case than the other. Maybe, but it would be due to trade execution and market volatility issues rather than directly related to over/under valuation. In fact, valuation aside, you can see how an upward market would give you a greater Pile Of Cash in the buy back scenario if you simply defer your sale. The buyback vs. dividend debate is not a valuation issue except to the extent that valuation affects price volatility.

 

+1

 

Additionally, if your cost basis is relatively close to the share price at the time when you sell then you have perhaps no tax (or very little) on this method of distributing cash.  Thus, the price volatility needs to be relatively high in order to be caught in a situation where your cash pile is smaller than that from the dividend.  And most likely, it will be higher.  Compare that to where you always lose a significant portion to taxes (dividend taxes).  It seems that over the long run, quarter after quarter, you would almost certainly come out ahead from selling shares (after company buys offsetting number of shares) instead of getting a cash dividend.

 

We just need more people to realize this and our tax bills will come down.

[TwoCitiesCapital]

Thanks for the responses guys. So it seems all of the available value at has been unlocked went into purchasing shares until things went down the tube. Then it went into operating losses and investment into the SYW platform.

 

I'm sure the bears will flame this post as it is very speculative and just a thought -- most likely posted b4.

 

I think it is important to consider the motivation of management.  For the majority of managements they benefit when earnings are better (GAAP), or revenues are boosted, or whatever metric is used to boost their compensation. Back when Eddie Lampert first took over Kmart and then Sears the thesis was that he wanted to spin off the real estate assets, possibly into a REIT.  The biggest impediment to that was the fact that they would have to purge retained earnings via a dividend (2 years ago they would've had to pay a $3.5+ billion dividend to shareholders).  Well, they've had over $4 billion of GAAP losses over the last couple years, and will soon be able to spin off a REIT without paying a dividend.

 

Over the past 2 years, they've contributed $850 million plus in cash to the pension which permitted them to offer pensions settlement that allowed them to further take a non-cash $452 million charge (related to their pension), a $1.8 billion loss related to writing down a DTA, as well as $1 billion writedown in goodwill.  They've also accelerated store closings costing $500 million.    Sure seems that they are trying to get hugely negative GAAP earnings.

 

By the way, they hired David Lukes in May 2012 to run Seritage Realty Trust (Seritage.com was purchased on May 18th 2012) . 

 

Of course, even with the REIT spin off, there is no guarantee that they will be able to effectively monetize their 18  million + sq foot of real estate.

 

Sears bears -- bash away. :D

 

Can you explain the idea of having to pay out the 3.5B in retained earnings before doing the spin-off? Is there some sort of tax implication to spinning off an entity with retained earnings or something that I'm missing?

 

Also, it seems like you're suggesting that these losses are on purpose to benefit Lampert in some way - through share repurchases at lower costs? Is that what you're suggesting? Is this kind of like one of those situations where The CEO makes the investment look as unattractive as possible so they can continue picking up shares at a beneficial price like John Malone did with that spin-off from Liberty Media?

[CorpRaider]

Yeah you're right buffett only really talked about not returning capital because they can better deploy it.  I doubt he has ever drilled down much into the best method of returning said capital.  Maybe look for some discussion of "cannibals" from charlie; op. Or just observe the historical MO of the guy running this enterprise.

[Luke 532]

Sears Hometown Store coming to Adrian

 

http://www.sooeveningnews.com/article/20130830/BUSINESS/130839958/0/FRONTPAGE

 

ADRIAN  — 

 

    The Sears retail name is expected to return to Adrian this fall with the opening of a Sears Hometown Store at 1424 S. Main St., in the former Hollywood Video store building.

 

    Owner Darren Morley said he expects to open the store in mid-October.

 

    Sears Hometown Stores are locally owned, scaled-back versions of regular Sears stores. The new store will sell large appliances such as stoves, washers, dryers and refrigerators; lawn and garden equipment; tools; box springs and mattresses; small appliances such as vacuum cleaners; and exercise equipment, among other items, but will not carry clothing, Morley said.

 

    He had to apply to and be vetted by Sears to open the store, which he will run under an operating agreement with Sears, Morley said. All the merchandise will be Sears merchandise and have Sears prices, he said.

 

    Adrian’s full-sized Sears store in the Adrian Mall closed in early 2012.

 

    “It looked like it was a very good opportunity to fill a void,” said Morley, who with his brother also owns Morley’s Floor Coverings on North Adrian Highway.

 

    Workers are finishing up wall, ceiling and floor work in the former video store building. The store will be “done to a certain look” required by Sears, Morely said.

 

    The building is about 8,600 square feet, he said.

 

    Sears Hometown Stores are geared toward being like a local family business, Morley said.

 

    “They want a real orientation toward customer service,” he said.

 

    Once the building renovations are done, it will take about three weeks to bring in all the merchandise and set it up for display, Morley said. He expects that the store initially will employ about a half-dozen people.

[ERICOPOLY]

Yeah you're right buffett only really talked about not returning capital because they can better deploy it. 

 

He also dropped hints about why he likes to retain it.  Such as speaking of the individual investments as tributaries that combine to form the mighty Amazon.

 

His strategy makes Berkshire stronger with every investment.  Returning cash to shareholders, does not!

[Luke 532]

A lot of Sears Hometown stores seem to be either opening and/or getting press lately.  Here's another...

http://www.whitelakebeacon.com/news/31348-sears-hometown-store-offers-it-all

 

New owner Steve Meyers and co-manager Aleshia Little stand outside the Sears Hometown Store at 1321 E. Colby St., Whitehall.

 

While the Sears Hometown Store in Whitehall provides the coziness of small town shopping, new owner Steve Meyers says it offers all of the products found in a full-size Sears store.

 

It's just that not all of the products are on the floor. What's not on the floor can be ordered and delivered to the hometown store at 1321 E. Colby Street with no delivery charge.

 

What's mostly found on the floor in the store are the popular lines of home appliances, including the Sears Kenmore line, Sears famous Craftsman tools, outdoor furniture and grills, lawn and garden power products including mowers, riding and push, weed trimmers, leaf blowers, and for the winter, snowblowers. Air compressors are available as well as generators. The store also sells parts and accessories for its products.

 

The store even has mattresses on display, and they can be ordered directly from the warehouse.

 

"What I like about the concept of the hometown stores, is it keeps the full line of Sears, the support of Sears, but maintains a local flavor," said Meyers.

[muscleman]

A lot of Sears Hometown stores seem to be either opening and/or getting press lately.  Here's another...

http://www.whitelakebeacon.com/news/31348-sears-hometown-store-offers-it-all

 

New owner Steve Meyers and co-manager Aleshia Little stand outside the Sears Hometown Store at 1321 E. Colby St., Whitehall.

 

While the Sears Hometown Store in Whitehall provides the coziness of small town shopping, new owner Steve Meyers says it offers all of the products found in a full-size Sears store.

 

It's just that not all of the products are on the floor. What's not on the floor can be ordered and delivered to the hometown store at 1321 E. Colby Street with no delivery charge.

 

What's mostly found on the floor in the store are the popular lines of home appliances, including the Sears Kenmore line, Sears famous Craftsman tools, outdoor furniture and grills, lawn and garden power products including mowers, riding and push, weed trimmers, leaf blowers, and for the winter, snowblowers. Air compressors are available as well as generators. The store also sells parts and accessories for its products.

 

The store even has mattresses on display, and they can be ordered directly from the warehouse.

 

"What I like about the concept of the hometown stores, is it keeps the full line of Sears, the support of Sears, but maintains a local flavor," said Meyers.

 

Nice.

I have seen many critics about Eddie and SHLD, but I can't figure out if I were Eddie, what could I have done to make a difference? I believe having a smaller physical footprint with display only merchandise is the future. Pure online shopping is not the future. Pure full line store isn't either.

[colinwalt]

And no, this can't be explained away with a hand wave about 3rd party sellers.

 

Try to search on "LEGO Briefs".

 

You'll get a result priced as "$18.00 $12.60".

 

Click on it and it's back to "$18.00".

 

It's available from seller...  You guessed it...  Sears.com.

 

Now add it to your cart.  Those generous people knock the price down to "$16.20" at this point. (not to be confused with $12.60, the originally listed sale price)

 

The cart says it's "sold by Sears and fulfilled by Sears".

 

What an interesting experience!

 

FWIW, I pinged "George Goley" via LinkedIn (www.linkedin.com/pub/george-goley/0/506/a91/) and directed him to this post of Eric's - told him to look at how sucky SYW is.  He actually responded, thanked me, said they had already corrected several problems with price, but was happy to have additional feedback.

 

I have not checked to see if this problem reported by Eric has been fixed.

[colinwalt]

It just struck me that I probably should have asked Eric if he was OK with me doing this first - so my most sincere apologies if this was not a good idea  :(