Categories
Articles

Value In Autos????

Some very big guns in the value investment world have been buying stocks in the auto sector. That means it is time to take a look.

In November, Berkshire Hathaway’s (BRK.A) Warren Buffett disclosed a 13.98 million share stake in CarMax (KMX) valued at $284.3 million (9.6% of total). CarMax has 90 locations it sells mostly used autos from.

It also showed a new, 2.7 million share stake in Wabco Holdings Inc (WBC), a maker of braking and other vehicle control systems.

Sears Holdings (SHLD) Chairman Eddie Lampert has been very aggressive in adding to his AutoNation (AN) stake and still holds Autozone (AZO) shares. AutoNation is the behemoth of the bunch with 245 locations primarily in the Southeast US.

Leucadia National (LUK) recently agreed to a standstill after accumulating 30% of the outstanding shares of Amercredit (ACF), an auto loan servicing company. AmeriCredit’s focus is primarily in the Southwest US.

All are hovering around 52 week lows.

It should be noted that this is NOT an endorsement of the US auto industry via Ford (F) or GM (GM) as these are just terrible businesses due to legacy union costs.
They are stuck in a cost structure that dooms them. It is probably the only business the airlines can look at and say “at least we are not them”.

It is to say that American’s have to drive. It is also to say that despite the current housing environment, the auto loan business has, up until this point, held up much better. My thinking is that I can walk away from my home if I am stuck in a resetting mortgage that will break me and still rent an apartment. But, in most cases, I will still need a car to get back and forth to work from wherever I end up living.

Because of that, I am far less likely to let them take my car or walk away from it since once I do that, the odds of getting another one anytime soon in this environment is, well, minimal. It almost is a built in base for the industry.

I have a real hard time saying Buffett, Lampert and the boys at Leucadia are missing the boat on this one since since an investment with either in the last decade has crushed the market by a wide margin.

I will say that I am looking very closely at the sector an will most likely piggy back on something here.

Disclosure (“none” means no position):Long SHLD, none

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Bruce Berkowitz on Sears Holdings

Here is a Bloomberg interview with Fairholme’s Bruce Berkowitz in which he talks about Sears Holdings

Disclosure (“none” means no position):Long SHLD

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert Buys 1.4 Million More AutoNation Shares

Sears Holdings (SHLD) Chairman Eddie Lampert purchased an additional 1.4 million AutoNation (AN) shares between March 7th and 10th at prices ranging from $13.70 to $14.05 through his hedge funds.

He now holds over 66.1 million shares or 36.7% of the total outstanding

Disclosure (“none” means no position):Long SHLD, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert Still Buying AutoNation Shares

In a just released SEC filing, Sears Holdings (SHLD) Chairman Eddie Lampert upped his AutoNation (AN) stake to 64.7 million shares adding another 1 million shares on March 3rd.

He now controls 35.8% of the shares

Disclosure (“none” means no position):Long SHLD, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert Buys 1.2 Million More AutoNation Shares

Sears Holdings (SHLD) Chairman Eddie Lampert is buying AutoNation (AN) shares by the handful.

In an SEC filing late Monday Lampert and disclosed he and his various entities purchased an additional 1/2 million shares at prices between, $14.60 ans $15.15 a share. This brings his total ownership to over 63.7 million shares or 35.3% of the total outstanding.

Disclosure (“none” means no position):Long SHLD, none

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Bruce Berkowitz on Sears Holdings

Hats off the Vlado for the tip on this one…

In a recent interview, Bruce Berkowitz of the Fairholme fund said:

One of your largest holdings, Sears Holdings (SHLD), has seen its stock price fall by about half over the past year. Do you think Chairman Edward Lampert can turn things around?

“I think that he’s going to do it. And it’s very reminiscent of what happened with Warren Buffett and Berkshire Hathaway in the early days. If you play back the tape, Warren Buffett bought into Berkshire Hathaway, a textile mill, and he took many years to try and turn it around. He had deep respect for the employees; he really gave it his best shot. And then when he realized it wouldn’t work, he then started to redeploy the assets and the free cash that was coming out of this industry that was destined to die. And that’s how Berkshire Hathaway started.

Sears is the same situation. Sears has a great real-estate portfolio, and people are behaving as if it can only be used as retail space. And they have brands; some of them are quite good. The company has over $50 billion of revenue and is making money, and people are acting as if it’s a company that’s bleeding to death. People aren’t looking at it in the right way. They are measuring it based as a retailer, and they are measuring it based on short-term net income profitability. But there are many more dimensions to Sears. Real estate can have a higher and best use. Today’s anchor to a mall can be tomorrow’s multipurpose, multiuse building where you can have office buildings, retail, and residential spaces.

Of course, the best thing that could happen would be that he turns around Sears and Kmart and it’s a grand-slam home run. The worst thing that happens is he gives it his best shot and starts to find higher and better uses for all of the assets, from land to trademarks to online. If you can see three or four different ways where you can make an awful lot of money with a guy who has a record of making an awful lot of money, it’s not such a bad thing.”

Disclosure (“none” means no position):Long SHLD

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

The Gap’s Plan: Something Familiar About It

Funny how perceptions rule investing. The Gap (GPS) reported earnings Thursday and investors like the news, sending shares up 5% during a day that saw a 300 point drop on the Dow (.DJI). In reading the plan, which I think is a very good one, I could not help thinking, “where have I heard this before”.

First, the numbers:
** Net earnings were $265 million or $0.35 per share.
** Gross margin increased 220 basis points to 34.8%
** Completed our $1.5 billion share repurchase authorization, purchasing almost 30 million shares in the fourth quarter.
** Generated $1.4 billion in free cash flow,
** Full year earnings were $833 million or $1.05 per share, versus $0.93 last year.

Very good numbers considering sales fell 5% (comp. sales down 3% vs 7% last year). But, like I have said before, given the current environment, retailers investors should expect deterioration here.

CEO Glen Murphy laid out the new direction:
1- A renewed focus inside the business on return on invested capital.
2- The only sq. footage growth will be outside the US
3- Improve earnings with a focus in growing margin dollars. Said Murphy during the earnings call, “We understand the importance of top line growth. We certainly understand the importance of store comps. But in this environment, given where we are in our turnaround, it is the prudent approach to focus on growth in gross margin dollars.”
4- Finalize a by brand, by channel, by country, a set of real estate plans.
5- Biggest area of opportunity is in cost of goods sold currently “nowhere near were it should be”
6- Complete current share repurchase and added an additional $1 billion.

Isn’t this almost Sears Holdings (SHLD) Eddie Lampert’s playbook verbatim? Now clearly there are some difference (Sears owns far more real estate, has more advantageous leases and have a different model shopper) but the essence of the plan is Lampert’s. Reduce costs, maximize return on investment and repurchase shares.

Gap will not be hit nearly as hard a Sears due to housing as they sell no appliances, lawn mowers etc. and that will cushion them. Also, consider the company is essentially debt free with only about $190 million outstanding. That translates to a very strong balance sheet.

To date Murphy has done a fantastic job and looking at the metrics he has to work with, he has the opportunity to wring more profits out of the company just by controlling costs even if the retail environment continues to falter (it should).

I have been watching Gap shares for almost a year now but I am hesitant to commit more money to a retailer now given all the uncertainties out there but when it is time, Gap is creeping up the list quickly.
Disclosure (“none” means no position):Long SHLD, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

The Weeks Most Popular Stores at VIN

Here are this weeks winners at Value Investing News

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Sears Holdings: A New Chapter

It is hard to get all worked up over these results at Sears Holdings (SHLD) for a few reasons.

1- They were expected
2- Cash is higher than predicted
3- Debt is lower
4- The share count is lower (20% lower in the last 4.5 years)
5- They plan you have been clamoring for is being implemented

So, first the results:

Net income of $426 million, or $3.17 per diluted share, for the fourth quarter ended February 2, 2008, compared with net income of $811 million, or $5.27 per diluted share, for the fourth quarter ended February 3, 2007. For the fiscal year ended February 2, 2008, net income was $826 million, or $5.70 per diluted share compared with net income of $1.5 billion, or $9.58 per diluted share, for the fiscal year ended February 3, 2007.

For the quarter, domestic comparable store sales declined 4.5% in the aggregate, with Sears Domestic comparable store sales declining 4.0% and Kmart comparable store sales declining 5.2%. For the year, domestic comparable store sales declined 4.3% in the aggregate, with Sears Domestic comparable store sales declining 4.0% and Kmart comparable store sales declining 4.7%. Declines for both the quarter and fiscal year include a more pronounced decline in comparable store sales in the month of January
2008.

The reason? The same as every other retailer save Wal-Mart (WMT). The weather is lousy, people have no money, housing, etc… Sears is no different in most respects except they have more tied to housing that either Macy’s (M), JC Penny (JCP) and Kohl’s (KSS) because of the huge number of appliance sales.

What really matters:

Sears had cash and cash equivalents of $1.6 billion at February 2, 2008 (of which $743 million was domestic and $879 million was at Sears Canada) as compared to $3.8 billion at February 3, 2007, a decline of $2.2 billion. For the year, the significant uses of cash included $2.9 billion for share repurchases, approximately $580 million in capital expenditures, debt payments (net of new borrowings) of approximately $600 million, and approximately $220 million of contributions to pension plans.

On January 14, 2008, they forecasted domestic cash and cash equivalents would be $1 billion at year-end, without effect of share repurchase activity after January 11, 2008. Subsequent to January 11, 2008, they repurchased $40 million of common shares.

During the fourth quarter of 2007, they repurchased approximately 5.3 million common shares under the share repurchase program at a total cost of $553 million, or an average price of $104 per share. For the full year, they repurchased 21.7 million common shares under the share repurchase program at a cost of $2.9 billion, or an average price of $135 per share. As of February 2, 2008, they had remaining authorization to repurchase $183 million of common shares under the program.

We have the odd position that the sales results were poorer than expected but the financial condition of the company is much better. Given a choice between the two, and in an economy like this one currently, it is more often the case than not, I will take the latter.

We are at a point now where we close the door on Sears as it is and look to the future. A 900% plus gain since Lampert took over Kmart in 5/2003 to the present, is there a problem?

What does the future hold? Sears brands will begin to show up all over especially in the likes of Home Depot (HD) and Lows (LOW). I can very easily see a scenario in which both retailers, given their current situation try ti outbid each other for an “exclusive” deal for the lines (Craftsmen, Kenmore, Diehard).

Kmart will eventually disappear. The real estate arm will look to maximize the value of each location and those locations will be either as a Sears, or another retailer. Either way, who cares. A large part of the eventual revenue will come from the REIT portion of the company. For evidence of how this can evolve, check out Vornado’s (VNO) history.

As the main brands become sold in various other retailers, the flexibility and the options in the real estate grow profoundly. The actual value of a Sears and Kmart location actually diminishes in terms of the company’s revenue and the value of what can be done with the floors and walls increases.

Will it happen in 2008? No. Don’t forget, retail as a whole still currently is lousy. That being said, progress is all we should really expect and want to see. The company will still produce $6 billion from operations that will buy back more shares and pay down more debt while we wait.

More later as I digest this more..

Disclosure (“none” means no position):Long SHLD, WMT, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert’s Latest Sears Holdings Letter

Sears Holdings (SHLD) Eddie Lampert released his latest shareholder letter. While much of is a recitation of results, there are clear signs into the companies direction.

It is going to become all about the brands:

First this:
“One of our most important resources is the great brands we own, in particular DieHard, Craftsman, Kenmore, and Lands’ End. All four of these brands have significant equity with customers and provide tremendous opportunity for value creation. To illustrate, let me discuss one of them, DieHard, in more detail. Based on brand recognition studies, DieHard leads in customer recognition among car battery brands by a wide margin, but it lags dramatically in market share. Why? We believe it is due to fewer points of distribution. As a proprietary brand, DieHard is only available in 900 Sears Auto Centers and 1,400 Kmart stores. Yet it is competing with other batteries that are available in thousands of locations across the country. Further, a car battery purchase is a duress purchase event, in which the customer is looking for the nearest, most convenient solution. Unfortunately, it is not always us, but there is an opportunity for us to rethink our brand distribution strategy to create value. “

Then:

“Our mission is to provide our customers with the products and services they want. And, we need to be prepared to supply them where and when our customers want. In many cases, that may not be exclusively through our stores. Instead, it could be online, via catalog, or possibly even through other retail outlets. We will now have a dedicated brand team who will manage our branded products – Kenmore, Craftsman, and DieHard, that way. Furthermore, we will have a Real Estate business that will act as an internal landlord, providing access to space and maximizing the value of that space over time. In order to be successful in the future we need to more quickly adapt to the changing marketplace and we believe that this structure will help us do that. We have begun the process of transforming the organization to this new model, but it will take some time to build the processes and information systems necessary to support the structure.”

There is more, including a record year that saw Land’s End post a 12% profit gain and others, but I wanted to get this out early. More to come later………

Read the full letter here:
Disclosure (“none” means no position): Long SHLD

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Julian Day Getting It Done at Radioshack

RadioShack (RSH) released results Tuesday and investors ough to be very pleased.

“The Shack” posted a 20% increase in Q4 net income as the retailer’s turnaround effort continues to take hold despite falling wireless-phone sales. Mostly selling accessories, batteries and other gadgets for wireless products, RSH said net income rose to $101 million, or 77 cents a share, from $84.5 million, or 62 cents a share, a year earlier. Net Income was favorably impacted by improved gross margin, a reduction in SG&A, and reduced interest expense when compared to the prior year.”Analysts” had expected 72 cents a share.

Revenue fell 6.4% to $1.36 billion as same-store sales dropped 6.7% on lower wireless and satellite-radio sales. In October, RadioShack predicted a “challenging” fourth quarter because of both weakened demand and competition. If this is “challenging” I would love to see “optimistic”.

CEO Julian Day, a former executive at Sears Holdings (SHLD) said, “I am delighted to announce that our team here at RadioShack once again produced strong improvement in our operating profit for the fourth quarter, and for the year as a whole. It is a testament to the hard work and devotion of everyone concerned, that this result was achieved against a background of difficult and uncertain economic conditions.”

Its cash balance increased $38 million at the end of the fourth quarter of 2007 to $510 million, driven by improved working capital management and cash generated from net income. It was partially offset by $150 million repayment of bonds in September, 2007, and $209 million of share repurchases during 2007.

The best numbers was that the chain generated $300.9 million in free cash flow through the twelve months of 2007 versus free cash flow of $189.9 million for the same period in 2006.

On a day that we see what bad management can do to a company (at Circuit City (CC)), the results at RadioShack (up 16% Tuesday) show us what good management can do.

Disclosure (“none” means no position):Long SHLD, none

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert Still Buying AutoNation shares

Sears Holdings (SHLD) Chairman Eddie Lampert disclosed in an SEC filing Tuesday night the purchase of an additional 792,500 shares of AutoNation (AN) through his RBS Partners hedge fund and other affiliates at prices between $15 and $15.26 a share.

This brings his ownership to 62.5 million shares or 34.6% of the total outstanding

Disclosure: None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Whitney Tilson on FOX Biz Talks About Sears

Whitney talks about what to look for in the current environment.

Frannie Mae (FMN), Freddie Mac (FRE), Merrill Lynch (MER), Sears Holdings (SHLD)and Target (TGT) are discussed.

Whitney says the “break up” value of Sears is $250 a share. He goes into good detail on it.

Disclosure (“none” means no position):Long SHLD, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

The Week’s Most Popular Posts at VIN

Here are the top stories of the week at Value Investing News

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books

Categories
Articles

Lampert Buys More AutoNation.

Sears Holdings (SHLD) Chairman Eddie Lampert disclosed Friday that through his RBS Partners hedge fund he added an additional 1,148,900 shares of AutoNation (AN) on 2/21 at prices between $15.10 and $15.30 a share.

This brings his total ownership through RBS and other affiliates to 34.1% of the total shares outstanding.

Disclosure (“none” means no position): Long SHLD, None

Todd Sullivan's- ValuePlays

↑ Grab this Headline Animator

Visit the ValuePlays Bookstore for Great Investing Books