Why Invest in Sears?

As we know, retail is lousy now, and Sears (SHLD) is in the unenviable position of being both a clothing retailer and a housing supplier (appliances, tools etc.). With the expected downturn there, how did we hold up? And are the reasons we invested in the company still valid?

In a word, yes. Here are the key take-away points. Remember, I expected a small loss.

• $500m inventory reduction.
• Added 65 net stores since last year which consist of Home Appliance Showrooms, dealer stores and outlet stores, and have continued to expand online and multi-channel capabilities. In May the company nearly quadrupled the number books, DVDs, music and software available at sears.com.
• CEO Bruce Johnson said:

  We expect to generate higher EBITDA in the second half of this year as compared to the corresponding period in 2007 as we benefit from our lower domestic inventory levels and continued vigilant expense management. Given our year-to-date results and the state of the economy, our current full-year EBITDA forecast, which assumes flat to modest comparable store sales declines for the rest of the year, is comparable to, but no longer exceeds, last year’s EBITDA.

• Repurchased $5.6 million shares in Q2 bringing outstanding count to 126 million as of 8/2 (watch the 10-Q Friday, Lampert is famous for buying shares between the end of the quarter and the 10-Q filing).
• Cash sat at $1.5 billion, down $100m from Q1.
• LT Debt reduced from $2.6b in Q1 to $2.2b in Q2.

So, why did we buy Sears? Lampert was producing profits, reducing debt, buying back shares and fixing two bankrupt retailers (Kmart was BK and Sears was days away from it).

All of those items are still happening. Yes, profits are falling (key word being profits) but so are those at JC Penny (JCP), Home Depot (HD), Lowes (LOW), Macy's (M) etc. What we want to know is, if we assume sales and profits are going to fall until the economy and in Sears' case, housing stabilizes, what is happening to the financial condition of the company?

In the case of Sears, the balance sheet is in the top echelon of retailers with the exception of Wal-Mart (WMT) and Target (TGT).

Cash is stable, debt is being reduced and shares repurchased. Shorts are going to get squeezed here. Ackman, Lampert and Berkowitz will not dump shares and they hold roughly 65% to 70% of the total and Lampert keeps reducing share count through the buybacks. If you do the math, there are plenty of shorts out there "swimming naked" that will be fighting for shares when they have to cover.

That will cause a surge in shares, a big one....

Full SEC Filing

Disclosure: Long SHLD

Comments

[BULRUN100:]

WOW SO QUIET WHEN THE STOCK MOVES UP 30-40%!!!
WHERE IS POSTER MSF=MOST-STUPID-F**K!

2008 Sep 03 05:42 PM

[Swiss Investor:]

Of course..
According to you, it was a buy at 180$, it's a buy at 80$ and it is going to stay a buy all the way down..
You should remember an important rule of investing: Never fall in love with a stock. And you probably shouldn't fall in love with a hedge fund manager, either.

2008 Sep 29 10:48 AM

[BSexposer:]

Another great call by Todd (I wish I was Buffett, maybe if I try REALLY HARD to be Buffett, I will actually BECOME Buffett) Sullivan...

2008 Oct 20 04:40 PM

[BSexposer:]

"According to you, it was a buy at 180$, it's a buy at 80$ and it is going to stay a buy all the way down..
You should remember an important rule of investing: Never fall in love with a stock. And you probably shouldn't fall in love with a hedge fund manager, either."

100% RIGHT!!!! THIS CLOWN HAS ENDLESSLY PUMPED THIS PIECE-OF-GARBAGE COMPANY AND IS STILL - STILL!!! - PUMPING IT ENDLESSLY ON HIS WEBSITE. MEMO TO TODD - GIVE UP ALREADY!!!!!! IT'S OVER!!!!!!

2008 Nov 17 12:09 PM