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  • A High Conviction Idea With 150% Upside [View article]
    Excellent analysis Mike, as with all your work. Agree completely about OSTK and see this one going to ~$32 in the short-term. A strong Q4 season might push it much higher. Performed an in-depth analysis ahead of Q2 earnings and arrived at many of the same conclusions you thoughtfully highlighted in this superb article.

    Although it may sound qualitative in value, your point about tech expenses/investments is very important. I urge everyone reading your article to go to and experience the interface for themselves. It is substantially more elegant and advanced than the old website, yet, importantly, is a much more intuitive and refined shopping experience than any of its competitors. Patrick Byrne is a visionary at crafting a value proposition and appeal that attracts a fusion of relatively affluent, mid-six-digit income households, 75 percent female, and, most importantly, exceptionally loyal core customers. Insurance, Supplier Oasis, and the software development business will contribute to higher margins. In particular, once the market understands the scalability of commercializing its enterprise software business in coming years, OSTK has the potential to be a multi-billion dollar market cap.
    Aug 7 04:43 PM | 3 Likes Like |Link to Comment
  • Lands' End: Growth Strategies, Free Cash Flow, And Short Interest Driving Shares Higher [View article]
    After only about a month, LE shares have performed exceptionally well, rising from around $32.50 when the article was written to over $37 today. They actually reached nearly $38 per share last week. With the merits of the company becoming more apparent, it is likely only a matter of time before that level is surpassed and shares reflect prices more aligned with the valuation contained in the article. One of the interesting features about this rally is that there has been little-to-no news or additional information since this article was published, which indicates that investors are discovering this opportunity and acting accordingly. Notably, Janus Funds disclosed that they have taken a sizable position. In coming weeks and months, one development to watch for is the participation of funds in acquiring LE shares. Since SHLD is not widely held by many funds and LE shares were distributed directly to shareholders, the only way for most investment funds to acquire LE shares to show they have them in their portfolios is to do so in the open market.

    Finally, another interesting development that should offer encouragement to anyone still thinking about investing in LE is the fact that there are still ~3.4 million shares of short interest according to the latest published dissemination period on June 30. While that dropped around 600K shares from the short interest reported in this article, that still indicates ~3.4 shares short out of ~4.6 million shares in the effective free-float. That continues to be a staggering two-thirds of the float held short. The next report will be published on July 24 for the period ending July 15. It appears that the shorts are being unwound slowly rather than a big announcement by the company blowing everyone out of their positions. In closing, the main catalysts to look for in the coming months are announcements about third-party wholesale deals in overseas markets, talk of small acquisitions, and website launches in new markets.

    Thanks for reading. Have a successful week.
    Jul 22 04:27 PM | Likes Like |Link to Comment
  • Lands' End: Growth Strategies, Free Cash Flow, And Short Interest Driving Shares Higher [View article]
    Hi Shaun,

    First, much respect for all your work and I recommend everyone follow you so they can get real-time alerts when you publish new articles. Thank you very much for your compliment. Yes, it is great for investors to base their investments on information from both sides of a thesis. That's what makes a market.

    To your questions:
    1. Yes, it is specifically labeled "PV of Firm" on the table. We have to use FCFF on this because the leverage is likely to change as the company maximizes growth in the next 2-3 years. It's not static, low-entropy leverage and I expect it will look much different even a year from now, particularly if they go to the credit markets to fund a growth initiative or bigger-than-expected acquisition. That's why it doesn't say equity, nor even mention equity, it's not FCFE. It is a per share estimate of firm value based on free cash flow. I don't use EV/EBITDA and don't view this investment as a value-oriented balance sheet play. I look at it as a growth play on FCF derived from the statement of sources and uses of cash. The annual expenses of debt maintenance already flow through the income statement and are on the top line of the cash flow statement in net income. As you suggest, if investors would like to quickly derive an FCFE estimate, then all they have to do is net out debt-cash. The debt is not due in one lump sum, therefore I didn't include any balance sheet cash, debt, or equity-related items. The valuation is an estimate on a per share basis of firm value based on FCF, essentially flows instead of stocks.

    2. The IT initiatives are almost entirely geared toward global expansion and marketing in new markets. As mentioned in the article, Sears has no reach into these markets and little to offer as a result, which is why Lands' End is making those investments in digital. To directly answer your question about building out retail, Lands' End has a lot of options. It depends on how aggressive they decide to be. They could do it via acquisition all at once or they could do it organically. Either way, I would expect them to expand their balance sheet to accomplish this and estimate that revenues would rise to finance this growth. I definitely expect SG&A to increase. They're going to be growing. Eddie Lampert told Women's Wear Daily that he intends for Lands' End to be a $5 billion global brand by the end of the decade. They intend to use the Tommy Hilfiger model to grow the brand worldwide. The cost structure and revenues will all increase to accomplish this. Sears will be in the rear-view mirror for LE in less than 5 years. We also do not know the extent to which the shops in Sears are currently cannibalizing direct online sales.
    3. This depends entirely on two variables. First, how quickly and aggressively they move on their stated growth initiatives. Second, as mentioned in the article, execution in Q4 is vital and where this company generates nearly all of its annual FCF.

    The $25 million in capex is the company's estimates. Since they can control capex and costs, I have to take that figure and, if anything, they might be erring on the side of being conservative since it was in a regulatory filing. I can't reasonably assign an additional $10 million more in capex - 40% higher than the stated $25 million - until I hear from the company what they would be investing it in. If we adjust for the debt on the balance sheet, then we're back to question 1 again and valuing equity through the lens of the balance sheet instead of my method of cash flow, sources and uses, and flows instead of stocks. It is simply a different methodology that you use to value companies, which I totally respect. You use EV/EBITDA, which is quite common these days. I'm old school. Sears would not be valued this way, it is a balance sheet play, stocks instead of flows. The reason the company didn't hold a conference call is because they have no analyst coverage yet and, as shown in the article, over 80% of the stock is held by a handful of insiders and investment funds that don't need a P.R. call to tell them what the company is doing. If management doesn't take the route they outlined in their filings, then I expect them to start buying back stock with free cash flow. I think management is fairly clear about their intentions in the company's filings, although I totally respect and understand your view. Yes, short interest is irrational and the volume the past week indicates that the unwinding is only in the very early innings. If the stock crosses $34.65 that may start to trigger margin calls or brokerage buy-ins as those short from the distribution date cross the 5% threshold.

    By the way: Two LE directors personally purchased stock and filed their SEC forms within the last 48 hours.

    I appreciate your comment Shaun. You're a true pro and a class act. We may not agree on this stock, but over the past year we are about 90% on other companies. Take care.
    Jun 19 05:59 PM | 1 Like Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    Thanks Mark,

    That is another important development. Keep them coming. When does Fine Capital file a new 13F?
    Feb 14 04:11 AM | Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    Thanks Mark,

    Looks like the pros are loading up!! ESL might be too. We will know soon.
    Feb 12 07:31 PM | Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    With all due respect idkmybffjill, you are wrong about the Sears Canada dividend. ESL received around $140 million from the special dividend because the hedge fund owns 28 percent of Sears Canada.

    The special dividend of $5 per share was for Sears Canada SHAREHOLDERS OF RECORD, not simply Sears Holdings. That made ESL's shares in Sears Canada eligible. As it turns out, Sears Holdings also received around $250 million from the special dividend as the 51 percent owner of Sears Canada.

    Thanks for the clarification about the quiet period. That is helpful.

    The more I thought about your original question solely in the context of Eddie Lampert's personal accounts, separate from ESL, the answer to your question became apparent. I recall researching this several months ago, so I would have to go back and check on the specifics, but I believe Eddie Lampert's annual compensation is entirely in Sears Holdings stock. I also recall something about him receiving this first tranche of stock on his one year anniversary of employment, which would be right about now, give or take a few weeks.

    There was also something about there being a period in which the basis for the calculation for the entire year's stock awards for him would be determined. My understanding of this was that the number of shares he would end up receiving would be based on how many shares could be purchased for an average price during the period. I will have to go back and read the fine print on this, but it seems like that basis period was either in early February or early March. It is in the notes to last year's annual report. They include Edde Lampert's entire comp plan as CEO.
    Feb 5 02:14 AM | 3 Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    Why would Lampert want to front-run ESL purchases with his own when the minute the regulatory filing hits the stock will bounce higher?

    Wouldn't he prefer to use ESL's Sears Canada dividend proceeds to accumulate all the shares he wants and THEN buy his own and file his disclosure forms?

    Seems like timing is very important when you are trying to buy the amount of shares required to restore ESL's stake back to its former levels. ESL would essentially be making a market for short-sellers looking to take their new positions down here as they read all these stories in the financial media about how Sears is in the "death spiral" and going out of business in the next 12 months.
    Feb 4 08:37 PM | 2 Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    Since the stake he gave up was held by ESL instead of his own account, it does stand to reason that he might prefer to raise the number of shares to the hedge fund's account first. You are right about his personal account, although does it really matter whether it is ESL or Lampert buying?

    One possible reason Lampert would prefer that ESL buy shares is because the hedge fund just received a load of $$$$ from the Sears Canada dividend last month. Why not use those funds to replenish the ESL stake at these levels first rather than his own personal capital?

    He could also be waiting until after earnings at the end of the month. Since you know a lot about the regulatory issues for corporate insiders, maybe you can elaborate on the rules for insider purchases or sales during the quiet period?
    Feb 4 08:31 PM | 2 Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]
    I stated that in this exact article last June:

    "Monetizing Retail Commercial Property Space

    Over the past few years, the company continues to rent space within its Sears stores to Whole Foods Market Inc. (WFM) for roughly 25 to 30 percent of the total retail square footage of the stores involved. In 2010, Sears began renting space to Forever 21, Inc. in its South Coast Plaza location in affluent Orange County, California. The move had the dual purpose of attracting younger customers into the Sears store and monetizing under-utilized retail space. Sears even leased 3.7 acres of its shopping mall parking lot to a company that built a 40,000 square foot bowling alley and bocce ball entertainment/dining establishment called Pinstripes at the Oak Brook Center in the western suburbs of Chicago."

    Read the article above that you are commenting on, this is hardly recent news.

    Also, Sears Re was not what Sandeep Mathrani was referring to in the quote in the conference call. Sears Re has nothing whatsoever to do with GGP or any REIT. Read the article above again. It details what Sears Re is and what type of properties are contained in the REMIC.
    Feb 4 08:06 PM | Likes Like |Link to Comment
  • Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy [View article]

    How do you know Lampert isn't buying stock at these levels? They don't issue press releases to declare he is buying until way after he has already accumulated all his new shares. We only find out that he was buying when he and ESL file 13-Ds with the SEC. That won't happen again until sometime in March. Maybe he is buying here and maybe he isn't.

    It is interesting that he was able to cash out the former ESL investors who wanted out in the window late last year by giving them the equivalent stock amount when SHLD was in the high $50s to $60 range. The 13-D gets filed much later, then the stock tanks in December in response. Next, pre-release bad Q4 in early January, the stock tanks more. How often does this company pre-release anything? Shorts smell blood in the water and start piling on. Sears stays mostly silent. Not much in the way of any good news in company press releases to put a bid under the stock price for the last few weeks. No updates on Lands' End. Shorts feel emboldened and pile on more, creating a very crowded trade. We have seen this story before in early 2012. Could it be that the best time to buy is when all the momentum is to the downside and that Sears waits to release positive information and go public with deals until the shorts are all-in and caught flatfooted? There's a certain rhythm to this and the news cycle. Then they stoke the upward price pressure with updates and press releases while the momentum is putting tailwinds at their back and the shorts get blown out with margin calls and can't regain their traction. Maybe, "this time it's different?"
    Feb 4 07:53 PM | 2 Likes Like |Link to Comment
  • Sears Holdings' Valuation Part Two: Credit Flows For Subsidiaries Inside A Permanently Embedded Capital Structure [View article]
    Thanks for your comment and question.

    Actually, SHLD shareholders are the ones who are benefiting from ESL and Eddie Lampert providing so much cheap financing to the company, so it's the other way around. ESL and Eddie Lampert are the beneficial owners of SHLD. Therefore, it is their top priority to keep the company in the best financial condition possible while the business model is transformed. It would be very difficult for anyone to make the case that Eddie Lampert or ESL are doing anything at the expense of shareholders since his net worth and the value of the hedge fund are inextricably tied to the fortunes of Sears Holdings. It is entirely an interdependent system as the flow chart illustrates.

    A much better case could be made about a counter-factual world in which ESL and Eddie Lampert weren't the beneficial owners of Sears or Kmart. Would either company have survived the 2008 financial crisis and the Great Recession? Would one, or both, of those companies ended up like Circuit City and - former Kmart subsidiary - Borders? Without financing from Eddie Lampert and ESL, along with the strong connections Eddie Lampert has in the banking industry and Wall Street, would either - or both - of these retail chains be stronger or weaker if they had continued along the path they were on in the early 2000s? In particular, Eddie Lampert poured over $100 million into Kmart in the form of direct investment in operations and capital expenditures as part of the deal when he gained control of it out of bankruptcy court. Without his cash injection and moves he made with the company in 2003 and 2004, how would Kmart's fortunes have been different by 2009? No one knows the answers to these questions because the actual events played out the way did. The only reason I bring them up is that it is worth considering what Eddie Lampert is doing and why he is doing it. Everyone thought he was crazy when he poured so much money into Kmart debt as they were going into bankruptcy. A few years later he was the next Warren Buffett. This is the essence of my upcoming book and when people truly understand and recognize what he is doing and how it will play out in coming years it will make their heads spin.

    There is much more to this story than this article or my "Sears Holdings' Valuation: Between Berkshire Hathaway And Bankruptcy" article cover. You will be amazed.
    Jan 1 10:31 PM | Likes Like |Link to Comment
  • Sears Holdings' Valuation Part Two: Credit Flows For Subsidiaries Inside A Permanently Embedded Capital Structure [View article]
    Hi Micah, Thanks for your comment.

    Your substitution of "software" for "capital" is interesting. Gilder has a new book out called "Knowledge and Power" that is about how all wealth is really knowledge. He points out that all the natural resources of the world existed in the age of the caveman, yet mankind lacked the knowledge to arrange those resources to achieve a lifestyle like those of modern man. It took thousands of years to gain this capital and insight into using our resources in ways that created wealth. The technology industry is a prime example of how the people you named were able to leverage their knowledge and insights into wealth creation.

    As for Lampert and Buffett, there is about a 30 year age difference. In my estimation, Lampert is from a younger generation than Buffett. He still has a lot of time to fulfill his destiny and reach his highest potential. Most people would agree he is one of the most intelligent investors and an exceptionally gifted asset allocator. The market only needs to be convinced that Sears will make money at some point. Buffett was able to demonstrate his investing acumen by having a lot of cash thrown off by Berkshire's insurance subsidiaries to make investments in other industries. When Eddie Lampert has positive free cash flow and funds to show off his investing skills, that is when we will find out if this truly is a once in a generation opportunity. Until then, it does take a lot of patience. This is an enormous company with hundreds of thousands of stakeholders. It is a monumental endeavor.

    You are right, we shall see. Thanks again for your comments. I always appreciate your insights. Have a successful 2014 Micah!!
    Dec 30 01:16 PM | 2 Likes Like |Link to Comment
  • Sears Holdings' Valuation Part Two: Credit Flows For Subsidiaries Inside A Permanently Embedded Capital Structure [View article]
    I like the name you gave that strategy.

    Remember the first quarter of 2012. A whole lot of shorts got cooked in the "Dutch Oven" between February and March when the stock doubled. Interesting to see what will happen in 2014.
    Dec 30 12:59 PM | 3 Likes Like |Link to Comment
  • Sears Holdings' Valuation Part Two: Credit Flows For Subsidiaries Inside A Permanently Embedded Capital Structure [View article]
    Thanks for your comment. Yes, some of that information is definitely in relation to the non-guarantor subsidiaries, their valuation, and how they are capitalized using the guarantor subsidiaries. That is a major reason why this particular article is so important to understand.

    Over time, this article will make a lot more sense to those who follow Sears. It may seem a bit opaque, or maybe not even all that important, at this particular time. In the end, the credit and capital structure is at the heart of this company. When the operating results turn the corner, the market will realize the importance of the structure Eddie Lampert created.

    Thanks for your comment. Have a successful 2014!!
    Dec 30 12:55 PM | Likes Like |Link to Comment
  • Is Jeff Immelt Of General Electric A Great CEO? [View article]
    Excellent work Bram. You do a superb job on all your articles and I enjoy them very much. Thanks!!

    Dave Cote did an interview on Bloomberg with Trish Regan last summer where he opened up about getting passed over for the CEO position at GE that ended up being handed to Immelt. He is such an upbeat optimistic man and really gives the impression that he is a winner at everything he puts his effort into. From the interview, it sounds like he was a late-bloomer as far as becoming a corporate executive and was probably not able to keep up with the sharp elbows and jockeying for position that may have been going on at the top levels of GE when Jack Welch was preparing to retire.

    As far as personality and projecting leadership, Cote seems to be a lot more like Jack Welch than Immelt judging from his demeanor in that Bloomberg interview, IMHO. One wonders how things would have been different for GE all these years if Cote was the CEO. He certainly has established an exceptional performance record at Honeywell during that period of time.

    Enjoyed this article a lot. Have a successful 2014 Bram!!
    Dec 30 12:44 PM | 4 Likes Like |Link to Comment