Seems the web is a flutter lately with Sears Holdings (SHLD) posts.
The latest today is from Portfolio.com and it essentially reiterates the premise that “most investors have given up on the prospect of a retail turnaround and are counting on Chairman Edward Lampert to begin raising cash through asset sales.”
I guess the question I have to ask is “did anyone really buy shares of Sears thinking Lampert was gunning to give Wal-Mart (WMT) a run for their money”? Really? Did anyone buy shares in a tiny New England textile mill in the 1960’s because they thought Warren Buffett has his sights on Berkshire Hathaway (BRK.A) becoming a textile empire?
I think Lampert has simply said several times it can be a very profitable business (and has up until last quarter).
Didn’t most people who bought into the company do so because they were intrigued as to what Lampert could wring out of it and parlay that into? Didn’t others of us buy because of that and because we saw the value in underutilized brands like Kenmore, Craftsmen, DieHard and Land’s End and the land they sit on?
I guess the answer to the “Sears as a retailer” question comes down the how it is defined. Are the brands it owns going away? No. Will those brands remain profitable for years? Yes. If that is true, then Sears will be around as a retailer of those brands for years. Will it remain in its current incarnation? Probably not. I have assumed here for a long time Kmart will eventually disappear and to be honest, so what if it does? As long as Lampert can take the dollars received for the location and parlay them into additional dollars in excess of what he made at Kmart, then, does anyone really care if there are 1,200 or 40 Kmarts left in three years?
If, as everyone of the doubters seem to claim Kmart is as lousy as they feel then that feat ought not be that difficult.
Will it happen overnight? No. Years? Yes.
The bottom line here is that Lampert still sits on $1.4 billion at Sears, until he does something with it other than repurchase Sears shares, Sears will be viewed as a
retailer. Once he branches Sears out, then it officially becomes an investment vehicle. One could argue that the new divisional realignment with the REIT division is already a step in that direction but, again, until things there actually take shape most folks will not see it. Like Buffett Lampert is using early ownership years to consolidate his ownership of the company. Today’s prices will allow that process to be expedited.
Who is right and who is wrong? Well, those of us who bought Sears shares years ago are still is the “right” column as we are still way up in our investment. Those who bought at $150, not so much. The good news? Buffett himself has said “you are neither right or wrong because the market says you are, you are either right or wrong because in the end, you are”
“In the end” is the key phrase. Berkshire shareholders (the were a bunch) who panicked at the turn of the century and sold shares when Berkshire plummeted near 50% later regretted that decision. Perhaps they believed the press that Buffett was “out of touch”? Those who doubted the media and used that opportunity to finally own shares (yours truly) later loved the results (I later sold leaving about $600 per “b” share on the table).
Sears is not an investment on a “quick retail turnaround”. It is an investment in a cash generating mechanism and what its head can eventually do with that cash. Because of that, measuring the outcome of the investment based on a quarter or two or a slide (or jump) in the share price will lead folks to assume too much in either direction.
Disclosure (“none” means no position):Long SHLD
54 replies on “More Sears Musings”
I THINK TODD HAS GIVEN UP TOO.
TODD – ANY COMMENTS.
When do you feel real earnings will kick into Sears,
Just a note there are value hedge fund managers that currently sold all their position in Sears.
Are you there Todd.
TOO MANY DONUTS.