The Short Story on Sears and Blockbuster

Sears Holdings Corp (SHLD) reported an unexpected first-quarter loss today, as sales fell at its Kmart and Sears stores and markdowns hurt margins, sending its shares down about 4% before the opening bell, says Reuters.

The retail giant, one of our best timed shorts of 2007, has grabbed the attention of short investors, who started to increase their positions in the company on the May 12th, and more significantly on May 19th. You will see from this two-year short interest chart of Sears (click to enlarge), that short investors have timed coming to the trade almost perfectly in every instance. Utilisation is now at 83%, up from 3% in July last year. 11.29% of the Market Cap is now lendable. For those investors who wish to close their positions and take profits, there are 26 Days to Cover. The average Utilisation for the rest of the S&P 500 is 7%, and for the rest of the North America Retailing it is 87%.

Another well-timed short at the end of last year was Blockbuster Inc (BBI), which, as you can see from this graph, had short sellers dramatically increase their positions, from 20% MCOL to 50% MCOL as the share price plummeted from 5.5USD to 3USD between mid-October and November 2007. Shorts have now been covered as the share price starts to bounce.

Comments

[FinancialFine]

Having just resigned from Sears I do no understand how no one saw this coming. Sales are slow all around, I understand, but Sears does not attract the customers that are shopping.
Sears has done away with its catalog business except during the holidays. Along with the tossing out of the catalog and catalog department Sears also ostracized it's most dedicated customer base, the elderly. Adults unfamiliar with the Internet can no longer order items to their homes by simply calling a hotline or visiting the catalog department. Many customers over 50 have had Sears cards for 30 plus years but are unable or unwilling to shop on the net. Furthermore, due to space constraints inside the brick and mortar store many items are only available on - line. If the non-computer savvy customer does not see it on the shelf the simply do not buy it.
Sears floor plan usually employs two stories with most of the square footage dedicated to the soft line business. This business is where Sears sees the most markdowns, which kills their bottom line. One fatal flaw of the Sears floor plan is that the appliance department usually resides upstairs. Many customers, by their own admission, do not realize that their neighborhood Sears carries appliances.
Sears' lack of initiate or funds to remodel old stores when other businesses have employed attractive eye-catching exteriors and trendy interiors has further deteriorated sales by not attracting the 18 - 36 year old shoppers. Sears sometimes uses it's own employees to conduct full store resets, and refreshes instead of hiring outside contractors. These takes the associates focus away from the customer.
Without the mergers and acquisitions of the recent years one can now see Sears for what it is. The past quarters have been inundated with padding of the earnings sheet through avenues other than store sales.
Again, I say, "What is the surprised look all about." Sears will stay afloat only until their cash on hand dwindles.

[bulrun100]

THE SHORTS WILL PAY AND PAY DEARLY.AS THE SHARE COUNT FALLS AND ECONOMY RECOVERS THE SHARE PRICE WILL BE A ROCKET.EVERYONE IS COMPARING THE COST NUMBERS TO SHLD'S WHICH IS RIDICULIOUS.FOR TWO REASONS. ONE IS A GREAT RETAILER THE OTHER IS AVG AT BEST.ONE SELLS GAS HELLO!!!!!WHICH PADDED ITS SALES AND COMPS.IF PEOPLE ARE GOING TO COMPARE PLEASE COMPARE FAIRLY.

[bulrun100]

Monday, June 2, 2008
Berkowitz Buys Sears Call Options

Kudos to Concentrated Value for the pickup

Bruce Berkowitz of the Fairholme Capital picked up call options on Sears Holdings (SHLD) shares. He hold options on 354,000 shares having a current value of $28.3 million.

The options are at the $80 strike price and if exercised would increase Berkowitz's position by 39%.

The options were purchased between the Feb. and the May filings