SHOS - Sears Hometown and Outlet Store

[jeffmori7]

SHOS lost another 10% today. I will look again into it after the results. It could get interesting.

 

Are you concerned that this is just a tracking stock for Sears Holding?

 

I think any negative view on SHLD will affect SHOS, for good or bad reason. The brand remains affected because it is the big flagship (SHLD) who is perceived as sinking and is driving the brands down a little bit with each new quarters. Thus is is not that good for SHOS, who completely rely on those brands.

[jeffmori7]

-13% again at the opening.

 

So we now have FCF of 25M$ for the 1st 3 quarters, SSS negative for Hometown, positive for Outlet, online sales increasing, revenues are stable, goodwill written off, a provision for less fees from franchisees, balance sheet is good (less debt, cash available, less inventories).

 

Now trades at 0.6x BV and 7-8x FCF. Buyback could be done at these levels.

[BargainValueHunter]

SHOS is up 25% today off of the lows.

 

Anyone know what's going on?

[merkhet]

SHOS is up 25% today off of the lows.

 

Anyone know what's going on?

 

I wonder if ESL would buy it back into the fold at these prices.

[bci23]

SHOS is up 25% today off of the lows.

 

Anyone know what's going on?

 

My guess is people initially just saw the massive GAAP operating loss and bailed without seeing that it was driven by the massive goodwill write off and an accrual for expected losses future losses.

[aws]

SHOS has been hitting new lows almost every day since the quarterly report.  As of today it's hit the 2/3rd of net working capital mark.  That must be quite humbling for a hot spinoff that was trading as high as 57 in 2013.  They don't seem to be burning much cash, so you would think this provides a reasonable margin of safety, but it's tough to say.

 

Personally I'm long and feel stuck. It's hard to imagine a rosy future anytime soon, but it's so cheap I can't imagine selling out right now.  The stock is trading like it's heading to zero in a hurry, but I don't really see that happening.  The cash burn is too small and there is no real long-term debt.

 

New stores keep opening, but neither the franchisees or SHOS corporate seem to be able to make any money off them.

http://www.bloomberg.com/news/articles/2015-03-19/sears-hometown-franchisees-business-has-suffered-post-spinoff

 

The primary product line is appliances, but Hometown stores are having trouble competing with largest competitors, including SHLD, who can offer free delivery.  Apparently they are going to try to 'refresh' their strategy in some stores, but we will see how that works out.

http://finance.yahoo.com/news/sears-hometown-outlet-refreshes-appliance-191745254.html

 

And then you still have the uncertainty of Sears future as a brand.  SHOS is heavily reliant on SHLD, and even if Hometown does everything right they could still fail if Sears does. 

[BargainValueHunter]

SHOS has been hitting new lows almost every day since the quarterly report.  As of today it's hit the 2/3rd of net working capital mark.  That must be quite humbling for a hot spinoff that was trading as high as 57 in 2013.  They don't seem to be burning much cash, so you would think this provides a reasonable margin of safety, but it's tough to say.

 

Personally I'm long and feel stuck. It's hard to imagine a rosy future anytime soon, but it's so cheap I can't imagine selling out right now.  The stock is trading like it's heading to zero in a hurry, but I don't really see that happening.  The cash burn is too small and there is no real long-term debt.

 

New stores keep opening, but neither the franchisees or SHOS corporate seem to be able to make any money off them.

http://www.bloomberg.com/news/articles/2015-03-19/sears-hometown-franchisees-business-has-suffered-post-spinoff

 

The primary product line is appliances, but Hometown stores are having trouble competing with largest competitors, including SHLD, who can offer free delivery.  Apparently they are going to try to 'refresh' their strategy in some stores, but we will see how that works out.

http://finance.yahoo.com/news/sears-hometown-outlet-refreshes-appliance-191745254.html

 

And then you still have the uncertainty of Sears future as a brand.  SHOS is heavily reliant on SHLD, and even if Hometown does everything right they could still fail if Sears does. 

Frankly, I don't see how they can compete against Lowe's, Home Depot and Costco. The "Sears" on the store signs that people see as they drive must be some sort of repellent like "Raid" or "Off".

[valueyoda]

I was actually long the stock last year for a while, as I thought that there was a substantial margin of safety in terms of net asset value and potential growth in franchises as Sears Holdings closes more stores. In the fall, I realized that Sears brand name and brands are irreversibly damaged. Hence, I sold all my shares and even went short at $15. Even though the stock is oversold and heavily shorted, I don´t see how a turnaround can successfully be implemented.

[PatientCheetah]

I gave up on the name with manageable losses and had some luck shorting the stock. There doesn't seem to be any end to the negative sales comp trend (reminded me of many failed retail stocks). Either the management is horrible or the concepts are not viable.

[valueyoda]

Exactly. It also shines a very dark light on the sum-of-parts valuation for Sears Holdings post-REIT.

[BargainValueHunter]

http://www.prnewswire.com/news-releases/sears-hometown-and-outlet-stores-inc-announces-ceo-to-step-down-300069703.html

 

Sears Hometown and Outlet Stores, Inc. today announced that, by mutual agreement with the Company's Board of Directors, W. Bruce Johnson, Chief Executive Officer and President, will leave the Company on August 1, 2015, the end of the Company's second fiscal quarter.

 

If they can find someone to improve margins and franchisee relations while the price to sales and price to book values are so incredibly low this could become an interesting stock again.

[InelegantInvestor]

http://www.prnewswire.com/news-releases/sears-hometown-and-outlet-stores-inc-announces-ceo-to-step-down-300069703.html

 

Sears Hometown and Outlet Stores, Inc. today announced that, by mutual agreement with the Company's Board of Directors, W. Bruce Johnson, Chief Executive Officer and President, will leave the Company on August 1, 2015, the end of the Company's second fiscal quarter.

 

If they can find someone to improve margins and franchisee relations while the price to sales and price to book values are so incredibly low this could become an interesting stock again.

Given Eddie's track record of hiring effective management, I wouldn't hold my breath.

[aws]

Looks like he was fired without cause and will collect $2 million of payments, but have to forfeit the 23k shares of restricted stock he held.  It could hardly be worse than it was under Johnson, but I'm not looking forward to seeing any Q1 numbers that might have prompted this.

[BTShine]

Selling at about 38% of book value.  Hard to lose money at this price, no?

[benhacker]

Selling at about 38% of book value.  Hard to lose money at this price, no?

 

Famous last words. ;-)  I see plenty of ways to lose, but I'm long.

 

Ben

[BargainValueHunter]

Selling at about 38% of book value.  Hard to lose money at this price, no?

 

This can't be accurate, right?

 

http://www.gurufocus.com/term/Tangibles_book_per_share/SHOS/Tangible%2BBook%2BValue%2Bper%2BShare/Sears%2BHometown%2B%2526%2BOutlet%2BStores%2BInc

 

Sears Hometown & Outlet Stores Inc (NAS:SHOS)

Tangible Book Value Per Share

$18.57 (As of Jan. 2015)

 

Tangible book value per share is calculated as the total tangible equity divided by Shares Outstanding. Total tangible equity is calculated as the total equity minus preferred stock minus intangibles. Sears Hometown & Outlet Stores Inc's tangible book value per share for the quarter that ended in Jan. 2015 was $18.57.

[constala]

@bargainvaluehunter, that's correct, reported BV per share is indeed $18.56 or $422m.

 

negative:

1)it stills incorporates Deferred Tax assets of $54m ie $2.4 per share so I would rather use a book value number of $16.17

2) this BV, in common with most retailers especially those asset light/franchisee model, is made of ~90% inventories ($442m) .....so one would be wise to put a discount on those KCD gardening/DIY/appliances items.....

 

- positive:

1)PPE could be seen as conservative, a bit like SHLD: it is booked at historical cost+D&A...for $50m

2) they have cancelled 100% of the goodwill in one shot,$167m in Q4,  which is safer, no more big intangible

 

Thus as a NAV proxy cap I would rather use Current Assets-Total Liabilities: $12.06.

 

[BargainValueHunter]

@bargainvaluehunter, that's correct, reported BV per share is indeed $18.56 or $422m.

 

negative:

1)it stills incorporates Deffered Tax assets of $54m ie $2.4 per share so I would rather use a book value number of $16.17

2) this BV, in common with most retailers especially those asset light/franchisee model, is made of ~90% inventories ($442m) .....so one would be wise to put a discount on those KCD gardening/DIY/appliances items.....

 

- positive:

1)PPE could be seen as conservative, a bit like SHLD: it is booked at historical cost+D&A...for $50m

2) they have cancelled 100% of the goodwill in one shot,$167m in Q4,  which is safer, no more big intangible

 

Thus as a NAV proxy cap I would rather use Current Assets-Total Liabilities: $12.06.

 

Thanks for the info. It would seem then that at this price level buying now would be rather safe if they would simply liquidate. I think that continuing to compete against Home Depot, Costco and Amazon is futile for them. 

[aws]

I'll be curious to see how many funds have dumped the stock when more 13fs come in over the next couple of weeks.  So far it doesn't look like anyone has sold out.  Chou still has 1.3mm shares, and all other funds reporting so far have net added 300k shares.  Short interest is also basically flat for the year.  Makes me wonder where all the selling pressure has come from.

[aws]

The annual meeting was today.  I wasn't there but they posted the slides:

 

https://www.sec.gov/Archives/edgar/data/1548309/000154830915000015/dmlib486999v1shoannualst.htm

 

Highlight looks to be the slide guiding to positive Q1 cash flow and a reversing sales trend.  The stock is up 11% on the news.

[focusinvestor]

The Q1 Guidance was much better than I (and I assume everyone else) was expecting... this should relieve some of the amazing pessimism reflected in the price.

 

The annual meeting was today.  I wasn't there but they posted the slides:

 

https://www.sec.gov/Archives/edgar/data/1548309/000154830915000015/dmlib486999v1shoannualst.htm

 

Highlight looks to be the slide guiding to positive Q1 cash flow and a reversing sales trend.  The stock is up 11% on the news.

[txlaw]

The Q1 Guidance was much better than I (and I assume everyone else) was expecting... this should relieve some of the amazing pessimism reflected in the price.

 

The annual meeting was today.  I wasn't there but they posted the slides:

 

https://www.sec.gov/Archives/edgar/data/1548309/000154830915000015/dmlib486999v1shoannualst.htm

 

Highlight looks to be the slide guiding to positive Q1 cash flow and a reversing sales trend.  The stock is up 11% on the news.

 

Yeah, combination of positive sequential sales trends, better cash flow, and lower borrowings indicates that SHOS may navigate 2015 without burning cash for the year, which makes the net-net situation a pretty good one for investors.

 

Not surprised that it's up so much on the disclosure.

[Matson125]

Thanks for posting the slides.  This is a very interesting situation.  I personally believe the Sears name is impaired and it seems the company thinks so as well.  America's appliance experts is a great start to rid themselves of the Sears brand, they are also securing trademarks for the abbreviated version of their name

https://trademarks.justia.com/owners/sears-hometown-and-outlet-stores-inc-2684403/

 

I'm from Canada and there has been an appliance store growing like a weed called Corbiel appliances, which is owned by Sears Canada.  After speaking with customers in the store no one realized Corbiel was owned by Sears although they carry Kenmore products.  I can see something similar happening with Hometown.

 

I think changing the name is the best thing that they can be doing right now.

[3259]

Does anyone have insight into the store count and its significance?  Increasing store count has been part of management's narrative; however, if you look at the management presentations for 2014 vs. 2015 (see attached), they don't appear to be making much progress.

 

Here's what they are showing for store count (See 2014 slides 11 & 18 vs. 2015 slide 8)

 

Total 1260 (2013) vs. 1260 (as of 01.31.15)

Hometown 1117 (2013) vs. 926 (as of 01.31.15)

Outlet  143 (2013) vs. 151 (as of 01.31.15)

 

Interested to hear what others make of the store counts.  I frequently see press releases about store openings, so what explains the lack of growth in store count?  Are they having issues keeping franchisees?  Are they closing underperforming company-owned stores?

SHOS_2014.pdf

SHOS_2015.pdf

[bci23]

Does anyone have insight into the store count and its significance?  Increasing store count has been part of management's narrative; however, if you look at the management presentations for 2014 vs. 2015 (see attached), they don't appear to be making much progress.

 

Here's what they are showing for store count (See 2014 slides 11 & 18 vs. 2015 slide 8)

 

Total 1260 (2013) vs. 1260 (as of 01.31.15)

Hometown 1117 (2013) vs. 926 (as of 01.31.15)

Outlet  143 (2013) vs. 151 (as of 01.31.15)

 

Interested to hear what others make of the store counts.  I frequently see press releases about store openings, so what explains the lack of growth in store count?  Are they having issues keeping franchisees?  Are they closing underperforming company-owned stores?

 

I noticed a lot of the same things. Management talks about store openings and the success of new concepts but they don't define what "success" means. "Early results are good" doesn't really explain much. If you look online there have been franchises selling their Hometown store for incredibly low asking prices. Hometown seems to just be a dog. I think there is potential for the Outlet segment if they can restore the margins there. SHOS seems to be a good example of Lamperts biggest weakness, hiring the wrong people!