What Exactly Happened to Sears?

I never understood the modern incarnation of Sears (SHLD).

Evan Newmark in the WSJ:

 

 

Wall Street loves the genius investor.

As Sears shares rose in 2006 and 2007, fellow hedge-fund investors, Wall Street analysts along with Jim Cramer and his merry band of retail investors anointed Lampert as the next Warren Buffett.

You can’t fault Cramer for a lack of loyalty to his friend. Lampert has done “better than just about any money manager on earth,” Cramer wrote in a TheStreet.com column. In February of this year, Cramer who mercilessly trashes CEOs, again defended Lampert. “This foolish criticism of Eddie must stop. ENOUGH,” he said, hitting his Caps Lock key.

Ironically, along with Cramer, it has been other “genius” investors that have been Lampert’s biggest believers. Sears largest shareholders include Bill Miller of Legg Mason, Bruce Berkowitz of the Fairholme Fund, Richard Perry of Perry Capital and Bill Ackman of Pershing Square. That is a lot of genius invested in a shrinking retailer run by a hedge-fund manager. These managers may have investing angles they aren’t ready to reveal, but so far they have publicly voiced support for Lampert.

 

 

I hate to say it, but given his luck of late, I'm not real surprised that Bill Miller is to be found in that group.

(via Felix)

We watched Goodfellas last night. It's my wife's favorite movie, so I've seen it about 15 times, but it ranks pretty high up there for me too, so I don't mind. Anyway, it seems to be a common thing in gangster flicks: They take over some struggling business, milk it out the wazoo for their own business purposes, and then let it just die. In the Sopranos, Tony did it with that sport goods store that was owned by the T-1000. In Goodfellas they did it to the Bamboo Hut and then lit it on fire.

Would it be that ridiculous to say it's what happened to Sears? More from that WSJ piece:

 

 

The company churned through sundry CEOs and senior managers. And it frequently switched retail strategies. But many investors regarded the operational details of a huge retail chain as a nuisance.

It was all about Sears’ numbers, not its customers. Cash flow and share buybacks. Not towels and tools.

But even Lampert understood the gig was up. Recently he abandoned the idea of Sears as a hedge fund and removed himself from an operational role.

This quarter Sears announced a surprise net loss, with sales at stores open more than a year down a hefty 9%. The company’s next plan looks like a retail Hail Mary: Separate the company’s best brands–Kenmore and Craftsman, for instance–and make them nonexclusive to Sears.

 

 

Granted this may make some sense, but the general idea: underinvest in the company, leverage it, take its cash and invest in elsewhere, and then unmoor it from its anchor brands and value...

Ugh, stopping right here before I sound like Gretchen Morgensen.