Tag: SHLD

So, Sears Holdings (SHLD) reported sub-par expectations on Tuesday and as I read the various reports and “analyst” comments, something jumped off the page. The first analyst compared Sears to retailers like Target (TGT), JC Penny (JCP), Kohls (KSS) and Macy’s(M). I read the comments and they all seemed legit. Same store sales are down at Sears in excess of the others. This must be bad. Then I read another report and that analyst commented that Sears was in trouble because it’s appliance and “big ticket” items were down like retailers Home Depot (HD) and Lowes (LOW).

All this got me to thinking, what is Sears and how should we set expectations for it? Is it a home improvement retailer like Home Depot, an electronics one like Best Buy (BBY) or a clothing retailer like JC Penny? The answer is neither and all of them.

Sears garners revenue and profits from both the big ticket washers and dryers, lawn and garden equipment, large screen tv’s and electronics and children’s shoes and family photos. Home Depot gets revenue from the former, Best Buy the middle and JC Penny the latter. None of them do all and because of that, we cannot judge and set our expectations for the retail performance of Sears according to our expectations for them, but look at all of them. We must expect the home appliance and electronics sections of Sears to continue to suffer as long as the sector’s major members do. This is not due to a failure of management or “Lampert’s store neglect” (today’s excuse being thrown around in the media) but simply due to “people not buying these items anywhere”.

Clothing. Even thought apparel is turning around at Sears (Land’s End will have a record smashing year and womens and children’s apparel are doing very well) one must sell a whole lot of clothing to make up for the lost sale of a $2000 washer & dryer or TV set. These are issues that JC Penny and Macy’s do not suffer from. It also means that when housing begins it’s turn around, that fact that Sears has turned the tide in clothing retailing will lead to spectacular results as folks begin buying those washers, dryers, refrigerators and TV’s again (they will).

What does this mean? Sears is not necessarily suffering from “bad management” , but “bad expectations”. The people setting the public expectations for Sears are comparing it to other retailers “in total” and not separating out the divisions. Just because Sears is a retailer does not means that because we expect “x” at JC Penny, we should expect the same at Sears. Sears is essentially in a retailing class by itself. It’s Kmart divisions competes with Walmart (WMT), it’s clothing with JC Penny and other clothing retailers, it’s home appliances and lawn equipment with Home Depot and it sells electronics against Best Buy. In order to set our expectations for Sears earnings, we must included expectations for all these areas as they all effect Sears. Currently, way to much comparison is being placed on the clothing retailers and not enough on the home improvement chains.

This is leading to over ambitious expectations for Sears and when they do not deliver, we have events like today. There are pithy headlines about Sears being a “broken retailer” but I have to wonder, did not Target, Home Depot and Best Buy just finish dialing back expectations for the near future? Are they “broken” or is it just a general slowdown for anyone who has significant exposure to those big ticket household items? I think it is the later. Just because Sears is not making excuses, do not be lulled into thinking they are immune from housing.

It is ok though, I will be in the market with Lampert today and we welcome the shares you want to sell.

So here is the financial nitty gritty. Sears Holdings (SHLD) said this morning it expected quarterly profit of $160 million to $200 million, or $1.06 to $1.32 a share, including special items.

Those special items would be an after-tax gain of about $12 million from bankruptcy-related settlements and total return swap investing activities, Sears expects to earn 98 cents to $1.24 per share. A gain on the total return swaps is good news.Last year in Q2, Sears earned $294 million, or $1.88 a share. Excluding special gains, it earned $272 million, or $1.74 per share.

Sears said it expected to end the second quarter with about $2.8 billion in cash and cash equivalents, excluding Sears Canada, down from $3.1 billion at the end of the first quarter.

In addition, Sears announced a new $1 billion share repurchase authorization in addition to the $121 million worth of shares still available for repurchase under an existing program. Sears said it had bought back about 13.8 million shares for $1.9 billion since the repurchase plan was approved in the third quarter of fiscal 2005. As of July 7, it had about 150.9 million common shares outstanding. On the last 10Q, Sears stated that the had 152,492,175 shares outstanding meaning Lampert has bought 1,592,170 shares since May 25. The new $1 billion program will take 7.1 million shares off the market or 4.7% of shares outstanding. A huge amount? No, but we know, based on past results this plan will be completed and share count reduced.

Should we panic? Sell? Hell no. Why? Sears is tied to the housing market far more than most other clothing retailers. It sells a huge amount of appliances, tools and yard equipment. It is a true mix of a Home Depot (HD) and a Macy’s (M) or JC Penny (JCP). That part of Sears is getting hit hard and it is not a management issue as both Home Depot and Lowes (LOW) are suffering the same fate now. Sears did say that women’s and children’s apparel both showed gains last quarter and the Land’s End division is having a record year. Neither of these are signs of a failing retailer. Rather, Sears is a retailer caught in the unavoidable train wreck that is the US housing market. When housing turns around, and yes it will, you will be left with a retailer that has made huge gains fixing it’s apparel offerings and now will be drawing more shoppers to those stores who are now spending money on their homes. They will also now have vastly different choices for apparel and based on current trends, will be buying them also.

Just as folks are claiming Home Depot and Lowes are undervalued, so to is Sears and for the same reasons. Today’s prices are a sale.

The reported numbers were from results for the nine weeks ended on July 7. The second quarter ends on August 4 and Sears said it did not plan to update its outlook before announcing second-quarter results on or about August 30.

Sears Holdings (SHLD) shares jumped over $5.68 Friday as rumors bounced around that Lampert may be getting ready to use some of the $4 billion plus he has sitting around in Sears coffers. Analysts said Macy’s (M) investors seemed to be positioning for a possible merger, reflected by a sharp rise in the department store’s options call volume as rumors of a deal percolated.

“There is some renewed takeover speculation in Macy’s heading into the weekend. Therefore, investors are buying shares and some options in case something happens,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

“The latest chatter today in dealing rooms is that super-investor Eddie Lampert may be looking to tie Macy’s and Sears Holdings together,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, in an e-mailed report.

Shares of Macy’s, that had been trading 15% below their YTD high have jumped on the rumors. Does the deal make sense? Hell yes. With a value of about 1/2 Sears Holdings, Macy’s would fit perfectly under the Sears umbrella. Not only that, the folks currently running things at Macy’s, who have have done a wonderful job the last 4 years with the Macy’s brand, could offer Lampert’s team assistance in revitalizing both Sears and Kmart. Macy’s has had problems with it’s May’s chain acquired in 2005 and I would be willing to bet if Lampert bought Macy’s, May’s would be gutted and sold to provide operating cash. How much? Consider Macy’s converted more than 400 former May’s locations to its namesake chain in September, about a year after buying the rival for $11 billion. The retailer owns more than half of its 858 Macy’s and Bloomingdale’s stores. The rest the company leases or owns on leased land. That would give Lampert a plethora of options the finance the deal and make it accredive to earnings almost immediately.

But, this is not the true “valueplay” Lampert has become known for and Macy’s is not currently selling at a bargain. Consider also that it only sits on only $500 million in cash and over $9 billion in debt. This alone would force Lampert to sell huge chunks of real estate to pay down existing debt and any debt added in the acquisition. Macy’s has repurchased over $3 billion in stock the last 28 weeks but has added $1.5 billion in debt doing so. Losing the dividend would save Lampert another $275 million a year and help reduce debt.

Should we root for this? Yes. If Lampert goes for it, he is seeing value in the assets and name far in excess of the current price. The plus of having Lampert buy it? He will have the ability to quickly extract that value for shareholders, of which, we must always remember, he will be the largest one.

If he doesn’t and this is all just another baseless rumor, oh well, the exercise was fun in an otherwise painfully monotonous news summer to date.

Did anyone hear anything about some new phone?

I just cannot find a reason not to buy shares in Goldman Sachs (GS).

Overview:
A global investment banking, securities and investment management firm who provides a wide range of services to corporations, financial institutions, governments and high-net-worth individuals. GS operates through three core businesses: Trading and Principal Investments, Investment Banking, and Asset Management and Securities Services.

The Trading and Principal Investments business (68% of 2006 net revenues) facilitates customer transactions with corporations, financial institutions, governments and individuals, and takes proprietary positions through market making in, and trading of, fixed income and equity products, currencies, commodities and derivatives. The activities of this business can be grouped under three segments: Fixed Income, Currency and Commodities (FICC);Equities; and Principal Investments.

The FICC business makes markets in and trades interest rate and credit products, mortgage backed securities, loans and other asset-backed securities, currencies and commodities. The Equities business makes markets in, trades, and acts as a specialist for equities and equity-related products. It generates commissions from executing and clearing client transactions on major stock, options, and futures exchanges worldwide through its Equities customer franchise and clearing activities.

The Principal Investments business primarily represents net revenues from corporate and real estate merchant banking investments. These net revenues are from three primary sources–returns on corporate and real estate investments, its investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG), and overrides. Overrides represent net revenues from the increased share of the income and gains derived from it’s merchant banking funds when the return on a fund’s investments exceeds certain threshold returns.

The Investment Banking business (15%) provides investment banking services to corporations, financial institutions, governments, and individuals. Investment Banking business is divided into two segments: Financial Advisory and Underwriting. The Financial Advisory segment includes advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs, while the Underwriting segment includes public offerings and private placements of equity and debt instruments.

The Asset Management and Securities Services business (17%) offers investment strategies, advice and planning to institutions and individuals worldwide, and provides prime brokerage, financing services and securities lending services to mutual funds, pension funds, hedge funds, foundations, and high-net-worth individuals. GS’s assets under management increased 27% in 2006, to $676 billion.

MANAGEMENT. In June 2006, Lloyd C. Blankfein was named as chairman and chief executive officer. The management change was due to Henry (Hank) M. Paulson, Jr., GS’s then chairman and CEO, becoming U.S. Secretary of the Treasury.

FINANCIAL. At the end of FY 06, GS’s net revenues had increased 51%, to $37.3 billion, driven by improvements of more than 50% at both the Investment Banking and Trading and Principal Investments businesses. Investment banking benefited primarily from underwriting volume, up 73% year to year, while the trading business saw a 60% improvement at its FICC desk. Operating expenses increased 38%, to $22.7 billion, more than offset by the growth in net revenues. Net earnings registered a robust 70% increase, to $9.4 billion and EPS rose to $19.69, from $11.21. Assets under management were 27% higher than a year earlier at $676 billion.

The most recent quarter saw EPS of $4.93 vs. $4.78 in 2006 and was shy of $5.35 estimates and 6 month EPS $11.61 vs. $9.86 in 2006. Top line was hurt by exposure to sub-prime mortgages, although equity and investment banking results were strong. Margins were pressured somewhat by continued global expansion and high levels of business activity.

It’s main competitors are Merrill Lynch (MER), Morgan Stanley (MS) and JP Morgan (JPM)

Alumni include CNBC’s Jim Cramer, Sears Holdings (SHLD)Eddie Lampert, White House Chief of Staff Josh Bolton, NJ Governor John Corzine and Former Treasury Secretary Robert Rubin .

Here is the thing, Goldman is undoubtedly the king of this sector yet it trades at a discount to it’s competition. At only 10 times earnings, it is just too cheap to pass up. Rather than jump at the new Private Equity companies that are rushing to go public and will soon see their tax rates soar, why not take a run with the unquestioned leader in the field?

I am…..

The gang over at The StockMasters tell us why we should be picking Sears Holdings(SHLD), Yahoo! (YHOO), Ivanhoe Mines (IVN) and Hansen Naturals (HANS)

Please visit them and read the article here:

In early February I posted about The Gap (GPS) and as it has been almost 6 months, time for another update like I did yesterday for Caterpillar (CAT). It is important to look back at you decisions as it is a great learning experience.

You should first read the February Gap post here, then continue with this post as it will be referenced.

From January:

“Numbers: We need to break everything down to per share amounts. Why? You pay your price for the company on a per share basis, we need to find out what you are getting for that money by the same metric. Currently Gap has 900 million shares outstanding and roughly $2.5 billion in cash (this amount has typically risen after the holiday season but we will use “what is” rather than “what could be”). That gives us $2.77 per share in cash. It’s property is valued at $7.2 billion or $8 a share (this is carried at an undervalued level, I will use it though so as not to be accused of fudging numbers to make a point, again, “what is”). Profits will be about 85 cents a share and the dividend is 32 cents a share. At this profit level, investors are paying 23 times 2007 earning (16 times the $1.25 they earned in 2006). The total value of the cash, property, earnings and dividends is $11.94. Sales look to be about $16 billion this year or about $17.80 a share.”

Where are we now?

As of May 5th, Gap now has $2.7 billion in the bank, EPS looks to be on track to finish the year around the 85 cents a share and the dividend is the same. Shares outstanding have increase 2 million but that is a function of the timing of repurchases vs. employee options and the overall number should continue to decrease. Debt, is unchanged and still essentially irrelevant. Q1 2008 revenue(quarter just completed) rose over Q1 2007. In March they announced the long overdue closing of the Town & Forth chain and are expanding the best performing unit, Banana Republic, a great move. Growth of the over saturated Gap line is being reigned in and the popular Old Navy brand in on track which is better but not really good enough. More decisive action probably wait until a new CEO is installed.

So, what to do? The stock price is essentially unchanged since the original post and until our single determining factor is answered, we should remain on the sidelines.

From February:

“I am not buying shares of Gap now nor do I currently own any. I want to hear what the new CEO says first. If they just continue the same path and try to jazz it up through more advertising, I do not see a resurrection of the Gap brand. In that scenario I believe they are in for another five years of mediocrity. But, any hint of them closing unprofitable locations and I am jumping in as I think we’ll have a ValuePlay.”

What do I really want? Ideally Eddie Lampert at Sears Holdings (SHLD) buys them. He is raising $3-$5 billion for more investment and with the cash he now has at Sears (almost $4 billion) he could easily do the deal. Now that Julian Day is in the process of fixing RadioShack (RSH) after he laid the groundwork at Sears and Kmart, would he like a return to a bigger stage with his buddy Lampert at the Gap to cement his fame as a retail turnaround wiz? The thought of this makes me want to run out and buy Gap shares but, that would be foolish. Like I said above, if the new CEO is just more of the same, shareholders will just get more of the same which is not much.

I think Gap is in wonderful shape and has great potential, I just need to know the direction they are going in.

After the last few analyst changes I have been reading I was beginning to wonder. All is not lost, here is one today from Goldman Sachs (GS) that makes perfect sense.

“Sears Holdings (SHLD) price target raised at Goldman to $200 from $195 based on strong cash flow generation and valuation updates. Promising initiatives include brand relaunches, growth of Land’s End, commitment to Sears Grand, and new IT systems. Maintained Neutral rating.”

Now, I will not address the price target because let’s be honest, it is a guess. Nobody knows what the price of the stock will be 5 months or a year from now. I am not also going to address the “rating” because it means something different at every brokerage even though they call them the same names.

So, then , what does matter? The reasoning behind it. Since January (and repeatedly since then) I have been saying the Land’s End store in a store concept was going to be a big winner and the record sales they produced last year prove that and, Lampert’s plan to double the number of stores that have from 100 to 200 illustrate his belief in the same. Goldman seems to also recognize this.

The IT upgrades to date have saved millions of dollars in inventory levels and operating efficiencies. Additional investment here (referenced at annual meeting) will enable Sears to streamline operations more and increase margins that have increase 3 years in a row now.

Brand launches of Craftsmen tool in Kmart is going full steam ahead and will have the multiplier effect of drawing more people onto Kmart for the tool and they will undoubtedly pick up other item while there.

Again, ignore the predictions of price and the “rating” but pay close attention to the reasoning.

CNBC reports that Eddie Lampert, Chairman of Sears Holdings (SHLD) is raising money through his former firm Goldman Sachs (GS)for a hedge fund. For folks looking for him to begin to spend Sears’ cash hoard, this is real good news.

It clearly means he sees investments he wants to make out there. I my opinion it smells of him wanting to do a mega deal and is adding dollars to his coffers. Between the money he raises, the $4 billion in Sears cash he has available and multiples of that in potential additional debt, he will now be able to do a much larger deal. It was not clear if this was a new fund or more cash for ESL Investments, the fund he has racked up 29% annual return for over a decade with. No matter either way. It does give Lampert the ability between the various entities he controls to take a controlling stake or buy completely a much larger company now. I would love to see him get his hands on the Gap (GPS) now. Still no new CEO there, sales have stabilized and great value in both cash on hand and real estate. He could do wonders there.

Coming off the heals of his recent Citi (C) purchase and the revelation he is back buying Sears shares, it is clear he is in a buying mood.

The fund requires a $25 million minimum investment, a 5 year lock up and a 6 month notice to withdraw. I am thinking about investing but can’t seem to find that $25 million I had laying around this weekend.

As a Sears shareholder, it does make thing very interesting.

So you want to buy shares in Sear Holdings (SHLD) but aren’t sure if this is a good price level? Apparently Eddie Lampert feels the current price is just fine. Between May 5 and May 25 the share count was reduced from 153.7 million and 152,492,175 shares according to today’s 10Q. That means Lampert bought back 1.2 million shares at prices ranging from ranged from $175 to $182. This is the first meaningful repurchase of shares in 6 months as in the most recent quarter Sears bought back no stock and in the quarter before that it repurchased only 82,000 shares.

Accordig to Jim Cramer: “That means the lowest price Sears could have paid was $175, the highest price $182.52. Again, while we don’t know the average price paid for those 1.2 million shares, we do know that it is higher than the $164.91 paid in the fourth quarter. That’s very important. Sears has a ton of cash, more than $3 billion. At this pace, if Eddie miraculously paid the low for all of that stock, he would go through the part of the $600 million buyback authorization that remained as of the press release in about 60 days. When that’s gone, I believe he will authorize another one.”

I said on Wednesday that no matter what happened after yesterday’s earnings release I was not going to sell shares, good thing, I would have been selling more stock to Lampert. Lesson learned..

Here they are, the top five most read posts for May. If they look familiar it is because two of them were linked to in Altucher’s “Daily Blog Watch” in TheStreet.com and the other in the Adviser Soapbox in Fortune Online.

Sears Holdings Corporation (SHLD) today reported net income of $216 million, or $1.40 per diluted share, for the first quarter ended May 5, 2007, compared with net income of $180 million, or $1.14 per diluted share, for the first quarter ended April 29, 2006 (22% growth). Our quarterly results included the net favorable impact of certain significant items as described in the “Significant Items” section below.

Same Store Sales

Domestic comparable store sales declined 3.9% during the first quarter of fiscal 2007. Sears Domestic comparable store sales declined 3.4% for the quarter, while Kmart comparable store sales declined 4.4%. We believe these declines reflect both increased competition and the impact of external factors such as rising energy costs, a slower housing market and poor weather conditions during the latter part of the first quarter of fiscal 2007. Land’s End and children’s apparel experienced sales gain, marking the third consecutive quarter of apparel segments improvement.

Operating Income

For the quarter, our operating income increased $62 million to $393 million in fiscal 2007, as compared to $331 million in the first quarter of fiscal 2006. This increase primarily reflects: 1) a gain of $30 million for a legal settlement reached in connection with a contractual dispute, 2) a $27 million curtailment gain recorded for amendments made by Sears Canada to its post-retirement benefit plans, and 3) a $15 million gain for insurance recoveries received on claims filed for certain of our property damaged by hurricanes during fiscal 2005.

Cash

We had cash and cash equivalents of $3.4 billion at May 5, 2007 (of which $3.1 billion is domestic and $0.3 billion is at Sears Canada) as compared to $3.2 billion at April 29, 2006 and $4.0 billion at February 3, 2007. The decline from February 3, 2007 primarily reflects increased merchandise inventories given seasonal shifts in our inventory levels in support of the spring/summer-selling season. Merchandise inventories at May 5, 2007 were approximately $10.3 billion, as compared to $9.6 billion at April 29, 2006. Additionally, we spent $113 million on capital expenditures and made debt repayments of $47 million, net of new borrowings, during the first quarter of fiscal 2007.

Swaps

Gains were partially offset by investment losses of $21 million ($13 million after tax or $0.08 per diluted share)incurred during the quarter on our total return swap investments.

What to think? Not much either way really, earnings improved so we can’t complain there. True is is because of “certain item” but cash is cash and profits are profits. It is clear the housing slowdown is hurting Sear as they do a ton of home related sales (appliances, paint, furnishings etc.). Apparel sales continue to improve at Sears and that is good news as once housing turns around, and, yes it will, retail operation should see significant improvement. If we strip out all the “other factors” affecting earnings for 2006 and 2007, earnings were flat. Considering the relationship Sears has with the housing market through both it’s appliance sales and “home services” division, this bodes very well. In short, good quarter, not great, but given housing, good is just fine.

Before the market opens Thursday, Sears (SHLD) will announce Q1 2008 earnings. The current estimate is $1.22 a share vs. $1.10 last year. What will investors be looking for?

1- Same Store Sales:

Sears, despite constantly improving profitability has experience a steady decline here. Investors seem to want to see a bottom. If this number comes in flat or up, watch for an immediate run in the stock. Much has been said about the importance this metric has and that it is not a “be all end all”, but, if it is the one folks follow, then we need to pay attention to it.

2- The Cash

Has Lampert done anything with it? Did he maybe buy Citi (C) shares for Sears and ESL? Has he invested it anywhere else?

3- The Swaps

These have been the only real investments outside of the retail operations. How are they performing? Did he liquidate them? Did he increase them?

4- The New Ad Campaign

Having seen it, I think is is great and have not seen anything close to this good from Sears in recent memory. Initial results from it may be available and anything said about it will be of interest.

5- Results

Believe it or not the actual earning numbers may take a back seat to the previous questions, assuming no large variation to expectations. Retails results have been mixed this quarter so a small beat or a miss may not be as important to investors as having answers to the other questions.

What will results be? With Sears not giving any guidance, any estimate is just a guess. I do know one thing, no matter what happens, I am not selling.