Is Lampert Making the Grade at Sears Holdings?

Although my focus is on small cap stocks which are underfollowed, I have been following with a close eye the progress of Eddie Lampert in creating change at Sears Holdings. The stock is now trading at levels not seen since 2004. If you go into a Sears or Kmart store they are often empty (at least in the area in which I live) and they are clearly not the premier brand that they once were.

Lampert has an outstanding track record as a hedge fund manager and utilizer of capital. However, to this point he has been unable to truly learn the ins and outs of the retail business, as Sears has faced increased competition from the likes of Home Depot and Lowe's for tools and appliances, Wal-Mart and Target for everyday items and the increasing number of discount auto suppliers for auto parts and tires. The company has also faced customer service issues (Lampert has said that one focus of the company going forward is improving the customer's experience).

Sears has some very strong brand recognition with its offerings such as Craftsman, Kenmore and Lands End, however, these names are not enough to drive strong future growth for the company. All along, the theory on Wall Street has been that Lampert would create a holding company or conglomerate type of setup much like Buffett has very successfully done at Berkshire Hathaway.

Lampert has said himself that he would like to see the company over the long term modeled after a company such as General Electric;

"My goal is to see Sears Holdings become a great company whose greatness is sustainable for generations to come. One of the critical elements of that kind of longevity is having a culture of testing and measuring, and openness to change. It is very rare for companies to continue to operate for long periods of time without substantial change and adaptation."

Some of the smartest investment managers in the world believe strongly in Lampert and Sears Holdings including Bill Miller at Legg Mason, Bruce Berkowitz at Fairholme, Davis, Mohnish Pabrai, Bill Ackman and many more. Of the group, Ackman is one of the more interesting as he is known for being an activist investor but as of ye thas not demanded much from Lampert (although this could change in future quarters if shareholder value has not increased.)

Some other positives for the company are that Sears Holdings has significant value in its real estate holdings,since much of it is currently priced on the books at cost, and in addition, Lampert is able to use his investment expertise to invest the cash as he sees fit.

All of the above variables make Sears an interesting case study to see whether a highly intelligent hedge fund and business manager is able to turn around a once very strong retailer which has struggled for years to return to its glory days and to bring wealth to its shareholders. Thus far, Lampert would get a C in my book, but I think there are many more chapters to come which can significantly change that grade.

Disclosure: The author does not hold shares in Sears Holdings.

Comments

[zpak]

I find the stores both Kmart and Sears in my area are well stocked and the employees make an effort to offer assistance . The Pharmacies in Kmart are well stocked and personnel are friendly and off great RX prices. I have even noticed the extra effort stores have made in cleaning the shelves and counter tops. It is still my place to shop

[R4ualways]

There are five Kmarts and two Grands and one full line Sears near me. Kmart stores seem to never have enough associates to assist customers and the ones that are there always look wore out, like they just ran the marathon, but somehow still offer assistance.
The associate turnover rate is probably extremly high in the Kmart stores which does not help in the "customer experience" because new associates are not knowledgeable.

[MSF]

All he has been doing with the cash is buying back Sears stock at higher prices.

I also read that he may purchase all the outstanding shares with his hedge fund paying a small premium.

Makes sense he is running the stock down and he is the largest shareholder.

[djlresearch]

What real estate value? Cap ex starved buildings in bad neighborhoods. Don't believe the hype on the real estate value. If those old clunker stores had any real estate value they would be sold instead of sitting there nearby vacant of inventory and customers. Employees have been ordered to park in front of the store to give the appearance that customers are there. Yet they can't afford to turn on the outside pylon light at night.

[MSF]

Forget about the real estate play,,,Vornado realty sold all their shares a while ago.

At least reits pay a dividend.

Hey remember this,Cramer said to buy Sears all the way up to $180.
My buddy pal Eddie Lampert.lol
"LOSE MONEY' STARRING JIM CRAMER

[bulrun100]

GOOD BLOG FAIR FOR THE MOST PART BETTER THEN THE LAST FEW.
POSTER MSF IS SHORT!!!!!!!!!!!!!!

[MSF]

I wish I did short at $180.

Give me some good news on Sears Bulrun.

[Jim Not C]

Nearest store is Mall-attached to a Mall going under for back taxes.

What value?

[MSF]

Where is Todd Sullivan,hiding.

Everything he said Lampert was going to do did not happen.

His latest,possibly buying GE's appliance unit.

Keep eating pizza and burgers Todd.

[Fat Lady]

Worked there for five years. They are losing all their good talent. We had some great managers who had innovation ideas and energy. They work there 2 years and they all resign and move on. The only managers that stay work there 15-20 years and are all afraid to say anything honest or introduce any new ideas. The company is dying from within and without.
I joined the company at 25 a share and rolled $100,000 401-k and sold/left at 189. It saved my retirement. Will buy when it goes back to $40 a share. Will keep singing until then.

[123]

Why did you roll your 401-K into it if "all the good managers are gone" etc etc

[bulrun100]

Retail as a whole is struggling, but Sears is seeing declines that are worse than those experienced by a pair of its closest mid-range rivals.

J.C. Penney's (NYSE:JCP) comps dropped 7.4% in its first quarter, yet it was going up against a fairly tough comparable. In Q1 last year the company posted a 2.2% comp store increase.


Target's (NYSE:TGT) Q1 comps were down 0.7%. However, that's on top of a 4.3% comp store increase last year.
Perhaps it's the hardware section that is holding Sears back. The housing market has been in a tailspin for months now, and this has spilled over into other related sectors. The two giants of the hardware industry have seen a brutal decline in sales over the last year.

Lowe's (NYSE:LOW) saw its Q1 comps decline 8.4%. That's on top of a 6.3% decline in Q1 2007.


Home Depot's (NYSE:HD) Q1 comps declined 6.5%. That's on top of a 7.6% decline in Q1 2007.

[bulrun100]

FROM 1999-2000 WSJ-BARRON'S
What's Wrong, Warren?
By Andrew Bary
Word Count: 1,476 | Companies Featured in This Article: Berkshire Hathaway, Berkshire's Class A, Coca-Cola, Gillette, American Express, Yahoo, Microsoft, Washington Post, Class B shares
A fter more than 30 years of unrivaled investment success, Warren Buffett may be losing his magic touch.

Shares in Buffett's Berkshire Hathaway are set to experience their first annual decline since 1990 and their second-worst year of performance, relative to the Standard & Poor's 500 Index, since Buffett took control of what had been a struggling New England textile maker in 1965.

At around $54,000 a share, Berkshire's Class A stock is off 23% in 1999, against an 18% return for the S&P 500 (including dividends). Berkshire has been hurt this year by weak operating results at its core ...

[iwishiwaszen]

Lampert's latest brilliant move is a project called "operation clean sweep" in which the stores dig into their own budgets to supply both the goods and the manpower for a fool's errand: associates are expected to clean every surface in the store, whether it's accessible by the customer or not. This extends to things like the tops of display-lettering located twenty feet in the air.
Evidently, a team from the central office will be coming in to check for such abominations as dust on unreachable fixtures. Their guidelines for cleaning have been published in a 200+ page manual delivered to each store manager, with at least 35 pages dedicated to the ins and outs of filing cabinets. It is not clear what stores with misfiled entries or a scratched shelf will receive in terms of punishment, but it's understood to be severe.


Lampert either fully intends to sell the corporation, or see it ground into dust under his feet. If you've got shares, now is the time to unload them.

[dena]

I can tell you why people should unload their shares, it is due to the lack of customer service which Sears provide its customers. None of the representatives has a "LAST NAME" and certainly they cannot keep an appointment when it comes to repairs. Every rep. has a different story and the lies goes on and on. My repair was scheduled for 6/6/08 between 8:00 AM and 12:00 noon and I am still waiting, Saturday 6/7/08 which should have been the next visit.
I will never buy another appliance from Sears or it next of kin. I trust that Sears can find it in its heart to refund the cost of my two years warranty.

[dena]

add my comment

[randal]

I for one think sears custermer service has fallen way behind.I think sears is not paying the employees right and there not taking care of there employees so they stay around keep working.Sears needs start taking more care of there employees that what you do make your money keeping good help.sears in home repair custermer service has fallen way behind there worried about making sales and not fixing stuff right i no you need make money but let get real take care custermer like you be....ps randal