SHLDQ - Sears Holdings Corp

[ourkid8]

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Tks,

S

[Luke 532]

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Tks,

S

 

Nothing wrong with taking profits, but wouldn't your comment assume the stock was fairly priced at your entry point (roughly low-to-mid $40's), thus requiring improving fundamentals to justify a rise in stock price? 

 

My analysis shows a rough ("fat man" analysis) break-up value of $100-ish.  Therefore, I don't think SHLD has been trading anywhere near it's fundamental value for quite some time. 

 

Again, don't get me wrong as profits are better than the alternative, but my personal approach to value investing is that I don't require fundamental business improvements to justify a deeply undervalued stock's rise in price.  Of course, if one believes it was fairly priced at $40-ish then selling on a 43% pop on no fundamental improvements would be a very good decision.

 

For what it's worth, I have been selling some of my calls and spreads that have hit 7-bagger (or more) territory, while simultaneously using some profits to enter additional trades where I think the risk/reward is favorable.  But those are simply trades and not value investments.  Don't plan on selling my shares anytime soon.

[ourkid8]

Hi Luke,

 

I agree, I do find the value of the RE worth significantly more then the stock price.  The problem is, I am looking at this investment similar to how I would value an O&G company.  I have noticed, a lot of companies do not trade at what their potential oil & gas is under the ground (Sandridge) but what is extracted from the ground and converted to cash. 

 

If Eddie announced he is liquidating the company, then at that point I totally agree it should be valued at it's liquidation price.  The problem is, we also have a brick and mortar retailer burning cash so until he can stem the burn rate and start converting the real estate into cash it will be trading at a discount.  They have started leasing out space to Whole foods, bowling alleys, forever 21 etc but this is still at it's infancy stage. 

 

The next earnings report will not be pretty, look at the other retailers and based on past earnings release the stock has sold off pretty violently.  I will keep dry powder on hand. 

 

Thanks,

S

 

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Tks,

S

 

Nothing wrong with taking profits, but wouldn't your comment assume the stock was fairly priced at your entry point (roughly low-to-mid $40's), thus requiring improving fundamentals to justify a rise in stock price? 

 

My analysis shows a rough ("fat man" analysis) break-up value of $100-ish.  Therefore, I don't think SHLD has been trading anywhere near it's fundamental value for quite some time. 

 

Again, don't get me wrong as profits are better than the alternative, but my personal approach to value investing is that I don't require fundamental business improvements to justify a deeply undervalued stock's rise in price.  Of course, if one believes it was fairly priced at $40-ish then selling on a 43% pop on no fundamental improvements would be a very good decision.

 

For what it's worth, I have been selling some of my calls and spreads that have hit 7-bagger (or more) territory, while simultaneously using some profits to enter additional trades where I think the risk/reward is favorable.  But those are simply trades and not value investments.  Don't plan on selling my shares anytime soon.

[BTShine]

I've been thinking for the past few days about something that Bruce Berkowitz said off-hand about Sears in one of his many interviews. He indicated that he believes Eddie Lampert hasn't made any mistakes so far (or that he would have made the same moves that Eddie has made.)

 

This was intriguing to me, so I decided to dig a little more, and I think I agree. In the years between the merger and the financial crisis, Sears was minting over a billion of free cash flow. My guess is that Eddie thought he could do the same thing he did previously at Autozone and Autonation, so he started repurchasing shares like crazy.  Between 2006 and 2010, he retired about 1/4 of the outstanding shares.

 

At the same time that the financial crisis was hitting, it turns out that online shopping (namely Amazon) was really cutting into retail -- between 2008 and now, Amazon's revenues have tripled -- and the combination of those two things made the retailing aspect of the business much more difficult. Once this became abundantly clear by 2011, Eddie started closing stores in 2012 and started the three subsidiaries (SHC, Seritage and Ubiquity) that get so much press on this thread.

 

I think that, in hindsight, we can certainly say that he probably shouldn't have bought so many shares back when he did -- but given the information he had at the time, it's sort of difficult for me to find fault with his decision-making process.

 

Thoughts?

 

Agree. 

 

I think EL generally agrees with you, too.  At one Shareholder's Meeting he said something along the lines of "obviously we wish we had bought all those shares at a lower price than $100+...we thought it was a good use of capital at the time...we made decisions based upon the information we had."

 

 

 

 

[BTShine]

Confirmation of the Term Loan came out today. 

 

http://searsholdings.mediaroom.com/index.php?s=16310&item=137229

 

 

[heth247]

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Actually stock is less predicable than people think it is (e.g. it will fall before earnings and crash after earnings again due to the bad retail side). I remember several long-time posters on this board did sell out before last earning and hoped to buy back in a month but missed the boat. I am not saying that this stock will not fall. Actually I am hoping it will fall back to $40 or below again so that I can increase my position.

 

Also, I want to question the saying by many that "this move is not based on the fundamentals". Why not? Maybe it is a (delayed) response of the development SHLD has been engaging, e.g. Seritage, Data centers, SYW, and is a projection by the market that SHLD might return to generating positive cash flow when the pension liability/cash-drag is reduced due to the rise of the interest rate...

 

I know, I know, I am speculating...

[tombgrt]

Slowly selling as well. From all my "investments" this has been my best speculation so far! :d

[Luke 532]

 

Also, I want to question the saying by many that "this move is not based on the fundamentals". Why not? Maybe it is a (delayed) response of the development SHLD has been engaging, e.g. Seritage, Data centers, SYW, and is a projection by the market that SHLD might return to generating positive cash flow when the pension liability/cash-drag is reduced due to the rise of the interest rate...

 

I know, I know, I am speculating...

 

Good point.  Perhaps some investors weren't aware of the things you mentioned until Baker Street spelled it out.  Much of the contents of that report can be found in this very thread if read from start to finish, but I would imagine the entirety of the Baker Street report was "new" information to many investors.

[merkhet]

 

Confirmation of the Term Loan came out today. 

 

http://searsholdings.mediaroom.com/index.php?s=16310&item=137229

 

 

From the Annual Report re the revolver:

 

"Advances under the Domestic Credit Agreement bear interest at a rate equal to, at the election of the Borrowers, either the London Interbank Offered Rate (“LIBOR”) or a base rate, in either case plus an applicable margin. The Domestic Credit Agreement’s interest rates for LIBOR-based borrowings vary based on leverage in the range of LIBOR plus 2.0% to 2.5%. Interest rates for base rate-based borrowings vary based on leverage in the range of the applicable base rate plus 1.0% to 1.5%. Commitment fees are in a range of 0.375% to 0.625% based on usage."

 

From the press release for the term loan:

 

"The Company can elect for the Incremental Term Loan to bear interest at a rate of LIBOR (subject to a 1.00% floor) plus a margin of 4.50%, or at a "base rate" plus a margin of 3.50%.  The Incremental Term Loan is secured by the same collateral as the Revolving Facility on a pari passu basis with the Revolving Facility and guaranteed by the same subsidiaries of the Company that guarantee the Revolving Facility, and matures in June 2018.  The Revolving Facility continues to be scheduled to expire on April 8, 2016."

 

So this is about a 2% rate increase from the 2011 revolver with a 2 year extension on maturity.

[BTShine]

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Actually stock is less predicable than people think it is (e.g. it will fall before earnings and crash after earnings again due to the bad retail side). I remember several long-time posters on this board did sell out before last earning and hoped to buy back in a month but missed the boat. I am not saying that this stock will not fall. Actually I am hoping it will fall back to $40 or below again so that I can increase my position.

 

Also, I want to question the saying by many that "this move is not based on the fundamentals". Why not? Maybe it is a (delayed) response of the development SHLD has been engaging, e.g. Seritage, Data centers, SYW, and is a projection by the market that SHLD might return to generating positive cash flow when the pension liability/cash-drag is reduced due to the rise of the interest rate...

 

I know, I know, I am speculating...

Also, I want to question the saying by many that "this move is not based on the fundamentals". Why not?

 

Great Point.

 

There has been change in the business of SHLD in the past few quarters.  SYWR is becoming something real.  This SYWR program is one idea that is resonating with customers (Mygofer on the other hand...well  :) ). 

 

Will ShopYourWay Rewards make SHLD profitable and valuable?  I don't know.  But, I do know it does have some value to the company...and the more members that join SYW, the more engaged members become (both of which is happening), the more valuable SYWR becomes to Sears Holdings. 

 

When you look at the increased awareness for SYWR on places like Google Trends, etc ( http://www.google.com/trends/explore?q=shop+your+way#q=shop%20your%20way&cmpt=q)  it becomes clear that customers are noticing.

 

Will it change customer habits?  If so, will it change customer habits such that Sears can be profitable?

 

 

 

 

[heth247]

So this is about a 2% rate increase from the 2011 revolver with a 2 year extension on maturity.

 

In the same press release they also mentioned that "The net proceeds of the Incremental Term Loan were used to reduce borrowings under the Revolving Facility, which resulted in borrowings outstanding under the Revolving Facility of approximately $1.0 billion."

 

Why take out a higher rate loan to replace a lower rate one, when the lower rate one still have 3 year left before expire?

[muscleman]

Guys, regarding SYWR online business, they DO care about your feedback!

http://www.kmart.com/shc/s/SYWMaxLandingPageView?catalogId=10104&langId=-1&storeId=10151&adCell=W1P

 

After logging in, on the right side, there is a box. I put in a few issues that I ran into during searching and buying my product, they quickly responded to me and offered a 10% off for the next purchase.

 

If you do care about SHLD and do care about its future, why not play around the side, and give them some feedback?

Also, there is the facebook like icon. Only 26 people clicked that. I doubt any shareholders here have done that. Why not? Come on guys!

[merkhet]

 

 

So this is about a 2% rate increase from the 2011 revolver with a 2 year extension on maturity.

 

 

In the same press release they also mentioned that "The net proceeds of the Incremental Term Loan were used to reduce borrowings under the Revolving Facility, which resulted in borrowings outstanding under the Revolving Facility of approximately $1.0 billion."

 

Why take out a higher rate loan to replace a lower rate one, when the lower rate one still have 3 year left before expire?

 

 

That's a really good question. I think we might find out the answer to that soon...

[mlcglobal]

I just sold half my position with a 43% return.  I am not greedy as this move was not based on fundamentals.  This can fall just as fast as it moved up especially closer to the earnings call. 

 

Actually stock is less predicable than people think it is (e.g. it will fall before earnings and crash after earnings again due to the bad retail side). I remember several long-time posters on this board did sell out before last earning and hoped to buy back in a month but missed the boat. I am not saying that this stock will not fall. Actually I am hoping it will fall back to $40 or below again so that I can increase my position.

 

Also, I want to question the saying by many that "this move is not based on the fundamentals". Why not? Maybe it is a (delayed) response of the development SHLD has been engaging, e.g. Seritage, Data centers, SYW, and is a projection by the market that SHLD might return to generating positive cash flow when the pension liability/cash-drag is reduced due to the rise of the interest rate...

 

I know, I know, I am speculating...

 

 

..."Charlie and I believe it is a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts”, or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it."

[mlcglobal]

"Can SHLD sell Kmart to either TGT or WMT? Kmart is in a lot of metros that shut out WMT."

[merkhet]

Quick question to the board:

 

Are there specific rules governing contributions to the underfunded pension?

 

I ask this because of two reasons. (1) The interest rate environment has improved slightly. (2) In re-reading the previous Sears letters, it seems like Eddie was very worried about trapped assets in an overfunded pension.

[krazeenyc]

Quick question to the board:

 

Are there specific rules governing contributions to the underfunded pension?

 

I ask this because of two reasons. (1) The interest rate environment has improved slightly. (2) In re-reading the previous Sears letters, it seems like Eddie was very worried about trapped assets in an overfunded pension.

 

Check out the Pension Protection Act (2006) [deals with reqs to contributions] and the Pension Stabilization Act (2012).  Last year the Stabilization act made it so that a lot of these underfunded pensions were a lot less underfunded, since instead of using the avg of interest rates from the last 2 years -- they can use the avg interest rate from the last 25 years... subject to min/maximums.  Basically the Stabilization Act was to provide relief to companies -- since the Fed was artificially keeping interest rates low.

 

If you want to read up on the changes from last year -- here's a good basic primer.

 

https://www.buckconsultants.com/portals/0/publications/fyi/2012/fyi-2012-0706-2012-Pension-Plan-Funding-Stabilization-Finally-a-Reality.pdf

 

But anyways if you look in last year's 10-K you'll see for example that in order for SHLD to offer lump sum payouts of ($1.5 billion) the plan had to be 80% funded.

[merkhet]

Thanks! I'll read through that.

 

(I was trying to figure out at what point Eddie might be able to throttle back on the pension contributions that have sucked up our cash.)

[txlaw]

I remember several long-time posters on this board did sell out before last earning and hoped to buy back in a month but missed the boat. I am not saying that this stock will not fall. Actually I am hoping it will fall back to $40 or below again so that I can increase my position.

 

If you're referring to me, I may have missed the first part, but I definitely caught most of the squeeze.  ;D

[jeffmori7]

No idea who Adam Levine is..but :

 

http://www.4-traders.com/SEARS-HOLDINGS-CORP-9814/news/Sears-Holdings-Corp--Adam-Levine-Opens-500-Shop-Within-Shops-in-Kmart-Stores-Throughout-the-Countr-17319845/

[rogermunibond]

Maroon Five leader singer and judge/mentor on NBC's "The Voice."

 

Not disimilar to having the Kardashian shop at Sears.

[jeffmori7]

Maroon Five leader singer and judge/mentor on NBC's "The Voice."

 

Not disimilar to having the Kardashian shop at Sears.

 

Ah ok..so I know him, thanks...I suppose it's not bad for Kmart.

[muscleman]

No idea who Adam Levine is..but :

 

http://www.4-traders.com/SEARS-HOLDINGS-CORP-9814/news/Sears-Holdings-Corp--Adam-Levine-Opens-500-Shop-Within-Shops-in-Kmart-Stores-Throughout-the-Countr-17319845/

 

You are quick! When I saw this news this morning, I thought Luke5:32 must have already posted that here. He is always the quickest in posting SHLD related news.

[heth247]

If you're referring to me, I may have missed the first part, but I definitely caught most of the squeeze.  ;D

 

Good for you! What are your thoughts on the rising of the stock, since now we know it is mostly not due to short squeeze? thanks.

[BTShine]

Maroon Five leader singer and judge/mentor on NBC's "The Voice."

 

Not disimilar to having the Kardashian shop at Sears.

 

Ah ok..so I know him, thanks...I suppose it's not bad for Kmart.

 

Adam Levine is legit.  He's a star and people will pay more attention to Sears and Kmart because of his clothing line.  Not saying it's a silver bullet for SHLD...but, Adam Levine, Sofia Vergara and Nicki Minaj are a better addition than the Kardashian Kollection.

 

I purchased some of his button down shirts during the pre-sale of a few weeks ago, and they're solid shirts.  Normally I buy my casual button down shirts at J. Crew, and honestly I wear these shirts more often than the 5 or 10 J. Crew shirts in my closet. 

 

Obviously I could be biased.