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Chad Brand

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  • A Sale Is Going On At Sears Hometown And Outlet Stores [View article]
    Free cash flow for the first 9 months of 2013 was negative to the tune of $60M. Even if you look at trailing 12 months in order to include a holiday quarter, it is still negative $26M. Why on earth would you assume they can consistently earn FCF margins of 3-5%? In 2011 (the year before the 2012 spin-off, which resulted in a lot of one-time items), FCF margins were 1%. I think your estimates are way too high.
    Jan 10 04:12 PM | 2 Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    The real problem for Eddie is that he can't get the retail business to cash operating income break-even or better. Between just three items (corporate interest expense, minimal capex, and pension contributions) SHLD faces over $1 billion of cash needs in 2014. Add in the retail losses and the hole is huge. So he has to sell assets just to tread water from a financial condition perspective. That results in a decline in intrinsic value (you have fewer assets and are no better off financially). Until cash flow from operations can more than cover interest, capex, and pension costs, the upside for equity holders cannot truly be realized.
    Dec 10 07:34 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Agree. I have been spending more and more time on Sears now that the asset monetizations have sped up, but the more I look at it, the more I don't see as much value. Which makes me wonder if it makes sense to devote more time to it...

    This LE spin-off really baffles me. They are getting no cash for it, and it earns $100M of EBITDA for them that they now won't have. So the retail losses are going to get bigger post-spin. Why are they doing this now? It just means Eddie is going to have larger liquidity issues in the short term. Why not keep the things that are earnings a profit (SHOS, LE, etc) and spend your time getting rid of money-losing stores, which would enhance liquidity?

    I don't get it.
    Dec 6 12:24 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Bad news for SHLD longs... Lands End spin-off will give SHLD no cash. Not only that, 2012 financials: $1.59B revenue and $108M EBITDA. At 7-8x EBITDA Lands End is only worth about $750M, about half of what Baker Street Capital projected ($1.4B).
    Dec 6 10:58 AM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Exactly. No idea why Eddie does his best to provide as little information as possible in SHLD's filings. You can, however, find out in each annual report what their sublease income was for the year. It's just one data point (and I would assume excludes rent generated from owned properties) from the leased stores only. But it's a start. FYI: Sublease income was $47M in 2012, and down vs 2010 levels, so real estate development has not ramped up yet (I would not expect a huge increase for 2013).
    Dec 5 05:38 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    It's a good question. I was under the impression that this is what Baker Street was trying to do with their presentation. They called it a "break-up" analysis and assigned a value to each asset separately. To me, that means they were assuming "everything" was sold piece by piece.

    I'm not sure what a book value would tell us about the ultimate value of SHLD's assets. Real estate companies are valued based on the NOI they generate from tenants, not book value. I still believe that if Sears' properties were already rented and generating income, they would be worth far more than if they were simply starting the process of closing the Kmarts and Sears and finding buyers/tenants for the properties. You have to discount the value due to the time it would take to turn SHLD into a real estate "company" rather than just a real estate "play" with an unclear future.

    Interestingly, I could see Seritage being a mini Howard Hughes (HHC). I say "mini" because they are nowhere near that far along as a real estate development company. The potential is there, though. HHC is worth about $4 billion and is a good comp in my view (FD: Long HHC)
    Dec 5 04:28 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    You are right, Eddie owns 25.1M shares personally, all of which are held in the ESL Partners fund. That fund has 47.1M shares in total, so 22M belong to the other LPs. There are 4 other smaller funds, which hold a total of 4.4M shares on behalf of LPs, giving Eddie control over a total of 51.5M shares (48.4% of the company)
    Dec 5 01:07 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Here is a new article on SHLD posted today on my blog:
    http://bit.ly/1iznQhV
    Dec 4 11:18 AM | 1 Like Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    If one is evaluating the Sears/Kmart merger, then Kmart by itself is simply not relevant. I cannot argue that it was a great move if you bought Kmart stock the day it emerged from bankruptcy at $15, but how many people really bought on day one? A month later it was already at $25. I would bet most early-ish investors in Kmart paid around $30. In those cases you are looking at a double over a nine year period, which is an 8% annual return. Solid, but not ESL-like by any means.

    The point of the article was the Sears combination, not Eddie's investment picking skills more generally. But since "Sears Holdings" has not worked yet, that is what people are clinging to. We'll just have to see what happens over the next 2-3 years. I think by then we'll have a better idea of exactly how much the different assets are worth, assuming he continues to accelerate the monetization efforts.
    Nov 27 11:00 AM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    My article was pointing out the disaster that the Sears deal has been. It was not questioning Eddie's skill as a hedge fund manager and his Kmart investment was clearly brilliant.
    Nov 27 09:14 AM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    I firmly believe you have to look at the entirety of the track record. You can't ignore the past nine years, or the next two years if they are good. You have to look at the entire horizon. Let's say Eddie continues to accelerate the asset monetization and gets the stock to $100 in two years. This is close to Baker Street's intrinsic valuation (which I would guess is close but a bit high). In that case I still would not call him a genius. He would just be back to break-even for his shareholders since the Sears merger. If Kmart was $100/share pre-Sears and 11 years later with Sears is at the same level, you can't argue the Sears deal was good for shareholders.
    Nov 27 09:06 AM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    How is it misleading to say he paid $11B for Sears? It was a stock and cash deal that diluted Kmart shareholders and that was the price that was paid. We'll see how much value he ultimately gets for the legacy Sears assets relative to that purchase price.

    The midpoint of the Baker Street valuation for SHLD was $13.9B and that figure was not adjusted for the time value of monetizing the assets. It's hard to argue that the Sears deal was accretive to Kmart shareholders.
    Nov 26 04:42 PM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Exactly. It's baffling that commenters think that Lampert making money for himself while his shareholders lose money is somehow proof that he has been creating shareholder value all of this time. Normally shareholder value creation is judged by the profits made by the shareholders.
    Nov 26 11:28 AM | Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Good luck finding a 9-year period where Berkshire Hathaway was 1) controlled by Warren Buffett, AND 2) lagged the S&P 500 index by 90 percentage points inclusive of dividends. I'm pretty sure that never happened.
    Nov 26 11:23 AM | 5 Likes Like |Link to Comment
  • Believers In Sears Holdings Transformation Are Ignoring Eddie Lampert's 9-Year Failure [View article]
    Pension liability is $2.4B today and also was $2.4B in January 2006 (last annual report available on the SHLD web site), so not much change there.
    Nov 26 10:12 AM | 1 Like Like |Link to Comment
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148 Comments
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