Sound off: Sears Holdings
Apologies for the lag between posts. I decided to take a little summer vacation. Moreover, I’ve been at a bit of a loss for interesting stock picks of late and the market itself seems to have entered a bit of a (relative) lull. We all seem to be holding our breaths waiting for an inevitable correction or, for the more optimistic, someone to declare alls clear.
Though I wrote a post disparaging Sears Holdings from the point of view of a retail investor, further research and thinking has actually put it firmly on my radar from a value perspective. Readers of this blog may know that its syndicated on two very interesting websites – GuruFocus and Seeking Alpha. While I appreciate the increased publicity, the one thing I find a little difficult is dealing with the fact that comments to my posts get fragmented across this site and the various syndication sources. I’ve done my part by integrating Intense Debate, I just wish Seeking Alpha or GuruFocus would follow suit and connect all comment streams. (I’ve heard Disqus might be even better. Anyone have any opinions on Disqus vs. Intense Debate?)
Anyways, I thought I’d aggregate some of the best comments from my various posts on Sears in a little bulls vs. bears “sound off” piece. These are various quotes taken from commenters where my posts have been syndicated. Feel free to contribute your own thoughts.
Sears Holdings Bull Cases
To me, Sears is selling for less than its run-off value. Isn’t that a good thing for buyers of the shares? If the retailing segment (vs the real estate) isn’t bleeding money, why is SHLD not like a minimally- leveraged closed end fund that has a REIT and a mid-tier retailer, selling for 60% the value of the REIT? – Jonmonsea, GuruFocus
The whole point of [Lampert's buy back strategy] is that the remaining shareholders end up with some value EVEN IF the business in question does not remain a going concern.
For shareholders, growing or even just maintaining a business, are a means and not an end. Resist the institutional imperative. – Batbeer2, GuruFocus
No one will mention that Sears Holdings gross margin was the 2nd highest in the history of the merged company. NO ONE will mention that. That’s why the earnings blew away expectations. The business may be in decline, but it’s being run well given the situation. Also, if they just reported the 2nd highest gross margin in the history of the company, then ask yourself, What happens when housing recovers? – fcharlie, Seeking Alpha
I get something like this – Brands: 3 billion; Real Estate: 6 billion; Inventory at cost of 9 billion: 5 billion; Operating business which cleared 800 million from operations in the midst of the worst recession and consumer contraction in decades: (at 5x depressed cash flow) 4 billion. That’s a minimum of $14 billion in value if you do not value the inventory liquidation simultaneously with the operating business subtract $2.5 billion in debt, and there is still lots of upside [from current market value]. – SamiC, Seeking Alpha
I agree, it’s not looking good for Sears – the retailer. However, Sears – the real estate company – could be compared to an oil company with reserves in the ground. The question is how quickly do you monetize the resource. Should the US face an inflationary future, Sears real estate may attract a lot of interest as a hedge against inflation. -AlbertaSunwupta, Guru Focus
Sears Holdings Bear Cases
I think the only thing that makes the real estate that sears owns valuable is the fact that there is a sears or K-mart in it. I think you cut the value in half if its vacant. I think the actual sears stores are a complete loss as they are usually the anchor of a mall, which gives you extremely limited re-lease capabilities. The K-Mart properties are a little more valuable, but since there are not many retailers left who want nicely used 100K sq ft builidngs, you will be faced with excessive costs to re lease the spaces, and they are generally not very easy to sub divide into smaller spaces due to the depth. -jgold47, Seeking Alpha
sears as a reit would have sears and kmart stores as the primary tenants. these stores have been doing horribly and are probably losing money now. thus, a reit based on the sears real estate might be worth a lot less than presented [in your post, "Sears as a REIT"]. -Malach Hamovess, Seeking Alpha
I’m not going to short SHLD, as this [buyback] strategy might ostensibly “succeed” for a little while more. But anyone thinking about going long really ought to visit a few of the stores first — it’s an increasingly gruesome sight and I don’t see a platform for turning around revenue growth. – Tricky, Seeking Alpha
Sears is in trouble, and I am tired of hearing so-called experts trying to defend them. Manipulating the stock seems to be their top priority, rather than try to get shoppers into their stores. – padresfan, Seeking Alpha
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