dingojoe's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/174326/comments http://seekingalpha.com/article/174889-borders-on-the-verge-of-bankruptcy?source=feed#comment-774111 774111 Mon, 23 Nov 2009 18:19:16 -0500 http://seekingalpha.com/article/167172-amazon-wal-mart-battle-over-books?source=feed#comment-720666 720666 Mon, 19 Oct 2009 12:37:09 -0400 http://seekingalpha.com/article/163879-pabrai-funds-annual-meeting-notes-2009?source=feed#comment-696972 696972 Wed, 30 Sep 2009 12:25:40 -0400 http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-678658 678658
As you noted, the US cash has been drifting down. it will be interesting to see what SHLD does in the 3Q and 4Q. The 3Q is always the weakest for retailers, lowest sales, weakest margins, have to get rid of any summer merchandise, and get your 4Q merch in the building. Last year, domestic operations produced a whopping 33M in EBITDA in the 3Q, meaning that they were essentially cash flow negative for the Q. Will SHLD continue to buy back shares in the 3Q? or will they take a Q off? Domestic operation will certainly generate big cash flow in the 4Q (the best Q for retailers) will SHLD use the cash to rebuild their cash? or pay down debt? or buyback stock?

Really, SHLD given their decline in sales and their declining need for inventory should be able to function within the new revolver unless they do something really stupid and while I don't think much of Eddie as a retailer, I don't think the financing part should trip him up.

It's easy to see why there are so many opinions on SHLD, many issues, an awful lot of opacity.]]> Wed, 16 Sep 2009 03:12:48 -0400
As you noted, the US cash has been drifting down. it will be interesting to see what SHLD does in the 3Q and 4Q. The 3Q is always the weakest for retailers, lowest sales, weakest margins, have to get rid of any summer merchandise, and get your 4Q merch in the building. Last year, domestic operations produced a whopping 33M in EBITDA in the 3Q, meaning that they were essentially cash flow negative for the Q. Will SHLD continue to buy back shares in the 3Q? or will they take a Q off? Domestic operation will certainly generate big cash flow in the 4Q (the best Q for retailers) will SHLD use the cash to rebuild their cash? or pay down debt? or buyback stock?

Really, SHLD given their decline in sales and their declining need for inventory should be able to function within the new revolver unless they do something really stupid and while I don't think much of Eddie as a retailer, I don't think the financing part should trip him up.

It's easy to see why there are so many opinions on SHLD, many issues, an awful lot of opacity.]]> http://seekingalpha.com/article/161596-are-best-buy-s-earnings-a-warning?source=feed#comment-678022 678022
Circuit City was down to 2B in sales per quarter last year(BBY did 11B), so much of the business had already been plucked.]]> Tue, 15 Sep 2009 15:25:38 -0400
Circuit City was down to 2B in sales per quarter last year(BBY did 11B), so much of the business had already been plucked.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-677932 677932
(Hope this is readable once posted)

Kmart gross margins:

Kmart 1Q Kmart 2Q Kmart 3Q Kmart4Q
2005--23.4 24.0 24.3 24.9
2006--23.8 24.2 23.4 26.3
2007--23.9 24.2 21.7 23.9
2008--23.2 22.9 22.1 24.5
2009--23.9 22.1

Kmart is a discounter and it's a very competitive segment. All of their competitors, WMT, TGT, Dollar General, Big Lots, hold much stronger hands, so it's just not realistic to expect any vast improvement. The other thing that will keep a cap on profits is SGA. Kmart already lives close to the bone, and even little things like the increase in minimum wage midsummer probably impacts them more than most retailers. Also, spreading advertising costs across fewer stores, means the cost for individual stores increases.

Regarding the pre-Christmas store closings, even if the lease expired, many landlords will give you a short term lease thru the holidays, as the landlord 90% of the time doesn't have anyone who can jump into that space immediately. Perhaps they've burned their bridges so much the landlords don't want to work with them. More likely is that they have another group of stores on deck to close after the holidays, and are trying to do this in orderly fashion.

It would be great if Sears was a more open company. Virtually all retailers hold conference calls will analysts after quarterly earnings are announced, but SHLD doesn't so it's kind of like an old fashioned Kremlin watch to figure out whats going on. ]]> Tue, 15 Sep 2009 14:37:31 -0400
(Hope this is readable once posted)

Kmart gross margins:

Kmart 1Q Kmart 2Q Kmart 3Q Kmart4Q
2005--23.4 24.0 24.3 24.9
2006--23.8 24.2 23.4 26.3
2007--23.9 24.2 21.7 23.9
2008--23.2 22.9 22.1 24.5
2009--23.9 22.1

Kmart is a discounter and it's a very competitive segment. All of their competitors, WMT, TGT, Dollar General, Big Lots, hold much stronger hands, so it's just not realistic to expect any vast improvement. The other thing that will keep a cap on profits is SGA. Kmart already lives close to the bone, and even little things like the increase in minimum wage midsummer probably impacts them more than most retailers. Also, spreading advertising costs across fewer stores, means the cost for individual stores increases.

Regarding the pre-Christmas store closings, even if the lease expired, many landlords will give you a short term lease thru the holidays, as the landlord 90% of the time doesn't have anyone who can jump into that space immediately. Perhaps they've burned their bridges so much the landlords don't want to work with them. More likely is that they have another group of stores on deck to close after the holidays, and are trying to do this in orderly fashion.

It would be great if Sears was a more open company. Virtually all retailers hold conference calls will analysts after quarterly earnings are announced, but SHLD doesn't so it's kind of like an old fashioned Kremlin watch to figure out whats going on. ]]> http://seekingalpha.com/article/161409-who-benefited-from-microsoft-s-bing-cashback?source=feed#comment-677445 677445 Tue, 15 Sep 2009 11:20:03 -0400 http://seekingalpha.com/article/161409-who-benefited-from-microsoft-s-bing-cashback?source=feed#comment-676919 676919 Tue, 15 Sep 2009 01:29:19 -0400 http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-676862 676862
I expect deflation, not inflation, will be the problem the next several years. Sears probably will get a modest bounce, or lessening decline, from the appliance rebate, but that like the housing bump should fade next year. The excesses of the last decade aren't that easy to wash away, and Sears/Kmart are the laggard.

As for margins, I've look thru the annual and quarterly report for sometime now, and I don't see any great trends in margins. The inventory seems a little high now, a 10% drop in sales yoy and only a 5% drop in inventory yoy, so they don't seem particularly well position for any dramatic improvement in margin.

I'm not a share holder, but I do agree it's fun to watch. ]]> Tue, 15 Sep 2009 00:58:32 -0400
I expect deflation, not inflation, will be the problem the next several years. Sears probably will get a modest bounce, or lessening decline, from the appliance rebate, but that like the housing bump should fade next year. The excesses of the last decade aren't that easy to wash away, and Sears/Kmart are the laggard.

As for margins, I've look thru the annual and quarterly report for sometime now, and I don't see any great trends in margins. The inventory seems a little high now, a 10% drop in sales yoy and only a 5% drop in inventory yoy, so they don't seem particularly well position for any dramatic improvement in margin.

I'm not a share holder, but I do agree it's fun to watch. ]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-675266 675266
Kmart generated a ton of cash when most of the Real Estate was sold, that enabled the purchase of Sears. Sears also generated a ton of cash when the credit card business was sold. That was great because you couldn't get near that amount for either of those segments now. The FCF generated for actually selling stuff keeps sinking, because they are a bad retailer that basically relies on residual loyalty. It just harder to generate FCF from 42B of sales than the 55B in sales that Sears-Kmart had when they combined. It'll even be harder when they're down to 30-32B in sales three years from now.

I stated in my initial post that i don't think SHLD is a bankruptcy candidate, I just think Eddie is stuck in a bad place, a bad retailer whose assts can't be monetized until the retail recession is a memory and that could be a decade out. In the meantime, Eddie has to keep it going as a retailer until that day arrives. How long that day arrives, how much of SHLD is left and how many shares exist at that point, I know not. I do think it's harder and harder to make the case that SHLD will be some kind of Berkshire-Hathaway vehicle.

I'm sure if Eddie could do it all over, he would get in a time machine, go back to 2007, and sell everything not nailed down. And then get a hammer and sell anything nailed down.]]> Mon, 14 Sep 2009 00:04:56 -0400
Kmart generated a ton of cash when most of the Real Estate was sold, that enabled the purchase of Sears. Sears also generated a ton of cash when the credit card business was sold. That was great because you couldn't get near that amount for either of those segments now. The FCF generated for actually selling stuff keeps sinking, because they are a bad retailer that basically relies on residual loyalty. It just harder to generate FCF from 42B of sales than the 55B in sales that Sears-Kmart had when they combined. It'll even be harder when they're down to 30-32B in sales three years from now.

I stated in my initial post that i don't think SHLD is a bankruptcy candidate, I just think Eddie is stuck in a bad place, a bad retailer whose assts can't be monetized until the retail recession is a memory and that could be a decade out. In the meantime, Eddie has to keep it going as a retailer until that day arrives. How long that day arrives, how much of SHLD is left and how many shares exist at that point, I know not. I do think it's harder and harder to make the case that SHLD will be some kind of Berkshire-Hathaway vehicle.

I'm sure if Eddie could do it all over, he would get in a time machine, go back to 2007, and sell everything not nailed down. And then get a hammer and sell anything nailed down.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-674603 674603
As for the 401K, many companies have pulled the match, however, I'm not sure how many of those companies also spend money on stock buybacks. It does not send an impressive signal to employees when management skimps on capex, cuts 401Ks, but has money for stock buybacks. The brighter, more motivated, and more talented ones see the writing on the wall and start jumping ship. Circuit City's demise was probably inevitable, but they hastened it with some boneheaded moves affecting employees. As cash flow keeps getting tighter and sales lower, don't put it past Eddie to start slashing commissions , and if that happens watch out.]]> Sun, 13 Sep 2009 13:30:19 -0400
As for the 401K, many companies have pulled the match, however, I'm not sure how many of those companies also spend money on stock buybacks. It does not send an impressive signal to employees when management skimps on capex, cuts 401Ks, but has money for stock buybacks. The brighter, more motivated, and more talented ones see the writing on the wall and start jumping ship. Circuit City's demise was probably inevitable, but they hastened it with some boneheaded moves affecting employees. As cash flow keeps getting tighter and sales lower, don't put it past Eddie to start slashing commissions , and if that happens watch out.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-673908 673908 Sat, 12 Sep 2009 19:08:35 -0400 http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-673900 673900 It clearly is the weakest by EBITDA and in fact may not be profitable when you factor in things like capex, store closing costs, and it's share of the interest.

It will take some time to close nonperforming KMarts because of leases, many of them long term. In the meantime the remaining stores continue to see SSS decrease and as stores close shared costs (advertising, home office salaries, etc...) are spread across fewer stores. Kmart already has the lowest margins and lowest payroll costs of the segments, so there's not much for sales decline and not much left to cut. By the time they close the current nonperforming stores, there may be a whole new batch of nonperforming stores. It's an ugly spiral and given, as you said, Lampert may be more interested in a runoff than a turnaround there's good reason to believe Kmart is in danger.]]> Sat, 12 Sep 2009 18:49:54 -0400 It clearly is the weakest by EBITDA and in fact may not be profitable when you factor in things like capex, store closing costs, and it's share of the interest.

It will take some time to close nonperforming KMarts because of leases, many of them long term. In the meantime the remaining stores continue to see SSS decrease and as stores close shared costs (advertising, home office salaries, etc...) are spread across fewer stores. Kmart already has the lowest margins and lowest payroll costs of the segments, so there's not much for sales decline and not much left to cut. By the time they close the current nonperforming stores, there may be a whole new batch of nonperforming stores. It's an ugly spiral and given, as you said, Lampert may be more interested in a runoff than a turnaround there's good reason to believe Kmart is in danger.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-673445 673445
Just slap a Willy Wonka hat on Eddie and it all makes sense.


On Sep 11 10:37 PM Dan Braem wrote:

> I still don't get how anyone can defend these buybacks. When companies
> buy their own shares regardless of price, that is a huge warning
> sign that management lacks intelligent capital allocation. Was
> SHLD so well capitalized that it could afford such buybacks? If
> the answer is yes, why not pay the cash (in the form of a dividend)to
> shareholders?
>
> I am still not sure where Eddie Lampert is headed with this company.
> I also believe that the company will avoid bankruptcy, but the long-term
> strategy remains unclear.]]> Sat, 12 Sep 2009 12:04:10 -0400
Just slap a Willy Wonka hat on Eddie and it all makes sense.


On Sep 11 10:37 PM Dan Braem wrote:

> I still don't get how anyone can defend these buybacks. When companies
> buy their own shares regardless of price, that is a huge warning
> sign that management lacks intelligent capital allocation. Was
> SHLD so well capitalized that it could afford such buybacks? If
> the answer is yes, why not pay the cash (in the form of a dividend)to
> shareholders?
>
> I am still not sure where Eddie Lampert is headed with this company.
> I also believe that the company will avoid bankruptcy, but the long-term
> strategy remains unclear.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-670626 670626
Retail real estate, especially big box real estate will be glutted for a long, long time. Lands End probably has some value on it's own or since it's not closely tied to Sears, another retailer may be interested. The other brands, Kenmore, Craftsman, and Die Hard, are closely tied to Sears and it's questionable just exactly who would be willing to buy them and as sales go down the value of the brands go down too. Sears Canada seems capable of functioning as retailer on it's own so it has value.

I've never been in the SHLD is going bankrupt camp, but I do think SHLD is a lousy retailer who can't monetize it's assets in the foreseeable future and those assets will continue to deteriorate in value year after year. The Barron's article did make very good points regarding FCF vs EBITDA and Eddie's retort is unconvincing. It's quite the box Eddie is in.]]> Thu, 10 Sep 2009 13:43:38 -0400
Retail real estate, especially big box real estate will be glutted for a long, long time. Lands End probably has some value on it's own or since it's not closely tied to Sears, another retailer may be interested. The other brands, Kenmore, Craftsman, and Die Hard, are closely tied to Sears and it's questionable just exactly who would be willing to buy them and as sales go down the value of the brands go down too. Sears Canada seems capable of functioning as retailer on it's own so it has value.

I've never been in the SHLD is going bankrupt camp, but I do think SHLD is a lousy retailer who can't monetize it's assets in the foreseeable future and those assets will continue to deteriorate in value year after year. The Barron's article did make very good points regarding FCF vs EBITDA and Eddie's retort is unconvincing. It's quite the box Eddie is in.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-670603 670603
Gary Balter in his preview for SHLD he expected SHLD to benefit from the closing of some competitors, presumably Circuit City, Linens and Things, and Mervyns (Balter then did a 180 and proceded to kick the snot out of SHLD when that didn't materialize) and in fact SHLD may have had a marginal benefit as Kmart did show some increase in Home Elecronic sales. Circuit City, like KMart, had more locations in poorer demographics than Best Buy so KMart could have pickup up some sales just from shear geography. Instead, Sears has to face some healthy competitors trying to fill the voids and take share away from Sears-- Kohl's, Forever 21, hhrgreg, and Lowe's being the most prominent (WalMart is, of course, the 800 lb gorilla in any retail room).

I've barely mentioned Kmart thus far, because it seems that they barely exist. Actually, and amazingly, a couple of articles had popped up in the last quarter touting Kmart because their SSS in the 1Q dropped less than Target. The reasons for that--Kmart closing locations (ultimately about 60 this year) while Target continues to open locations (though TGT is bringing that process to virtual halt in 2010), Kmart had a particularly lousy 1Q in 2008, Kmart has a greater presence in small farming towns which actually felt the recession later than most, and a boring accounting issue involving how shoe sales are counted. Inded for the 1Q TGT overall sales were actually flat while Kmart 's dropped about 4%.

None of that was discussed, and indeed much of that isn't of primary importance. What is of primary importance is that the average Kmart does $11M in sales while the average Target does $38M in sales. Kmart already lives pretty close to the edge of oblivion and any drop in sales puts them that much closer. Many Kmarts have long term leases (which was supposed to be an asset in the go-go days of Real Estate) which means it will take quite some time to close the underperformers. Not sure if what's left will even be viable after the underperformers are weeded out.]]> Thu, 10 Sep 2009 13:26:47 -0400
Gary Balter in his preview for SHLD he expected SHLD to benefit from the closing of some competitors, presumably Circuit City, Linens and Things, and Mervyns (Balter then did a 180 and proceded to kick the snot out of SHLD when that didn't materialize) and in fact SHLD may have had a marginal benefit as Kmart did show some increase in Home Elecronic sales. Circuit City, like KMart, had more locations in poorer demographics than Best Buy so KMart could have pickup up some sales just from shear geography. Instead, Sears has to face some healthy competitors trying to fill the voids and take share away from Sears-- Kohl's, Forever 21, hhrgreg, and Lowe's being the most prominent (WalMart is, of course, the 800 lb gorilla in any retail room).

I've barely mentioned Kmart thus far, because it seems that they barely exist. Actually, and amazingly, a couple of articles had popped up in the last quarter touting Kmart because their SSS in the 1Q dropped less than Target. The reasons for that--Kmart closing locations (ultimately about 60 this year) while Target continues to open locations (though TGT is bringing that process to virtual halt in 2010), Kmart had a particularly lousy 1Q in 2008, Kmart has a greater presence in small farming towns which actually felt the recession later than most, and a boring accounting issue involving how shoe sales are counted. Inded for the 1Q TGT overall sales were actually flat while Kmart 's dropped about 4%.

None of that was discussed, and indeed much of that isn't of primary importance. What is of primary importance is that the average Kmart does $11M in sales while the average Target does $38M in sales. Kmart already lives pretty close to the edge of oblivion and any drop in sales puts them that much closer. Many Kmarts have long term leases (which was supposed to be an asset in the go-go days of Real Estate) which means it will take quite some time to close the underperformers. Not sure if what's left will even be viable after the underperformers are weeded out.]]> http://seekingalpha.com/article/160631-don-t-forget-sears-housing-connection?source=feed#comment-670548 670548
Now, here's the kicker, in their 10-k, under "Competition" SHLD states that appliances make up approximately 15% of overall sales. That would make appliance sales of 7.0B overall and would make their share of the US market under 25%. It also happens that in every 10-k since 2005, under "Competition" it says that 15% of overall sales are appliances. I guess that means that appliance sales have fallen at the same rate that overall sales have fallen every year since Lampert took over, or that indicates a careless error on the part of those producing the 10-k. Given how little information SHLD, under Lampert, any misinformation in the 10-k is unacceptable.

Putting the math aside, yes SHLD,or at least Sears US, is wedded far more to the housing market than other department stores, however they do sell a considerable amount of soft goods and even have some categories, like gardening, hand tools, automotive, that you would expect to benefit marginally from the DIY efforts that rise during recessions. However, Sears SSS lag both the home improvement retailers and the department store (save for the luxury retailers). Barron's had a nice graph showing that Sears sales lagged the industry in both good times and bad. ]]> Thu, 10 Sep 2009 12:52:04 -0400
Now, here's the kicker, in their 10-k, under "Competition" SHLD states that appliances make up approximately 15% of overall sales. That would make appliance sales of 7.0B overall and would make their share of the US market under 25%. It also happens that in every 10-k since 2005, under "Competition" it says that 15% of overall sales are appliances. I guess that means that appliance sales have fallen at the same rate that overall sales have fallen every year since Lampert took over, or that indicates a careless error on the part of those producing the 10-k. Given how little information SHLD, under Lampert, any misinformation in the 10-k is unacceptable.

Putting the math aside, yes SHLD,or at least Sears US, is wedded far more to the housing market than other department stores, however they do sell a considerable amount of soft goods and even have some categories, like gardening, hand tools, automotive, that you would expect to benefit marginally from the DIY efforts that rise during recessions. However, Sears SSS lag both the home improvement retailers and the department store (save for the luxury retailers). Barron's had a nice graph showing that Sears sales lagged the industry in both good times and bad. ]]> http://seekingalpha.com/article/157804-steer-clear-of-sears-barron-s?source=feed#comment-642714 642714
Basically it's a contest to see if Lampert can keep a poor retailer he hasn't invested money in (preferring to buy back stock) alive long enough to realize any value on the assets, at some point over the horizon. Thsi quarter's numbers are a blow to the idea that he can.

Sure, all retailers have been affected by the GR, but SHLD has clearly been the laggard. They've also been trapped by their Real Estate to an extent. They own and have long term leases on plenty of poor performing store, so even though they're closing about 80 boxes this year they've still got plenty of dogs left.

One thing I didn't see mentioned was the inventory which only dropped from 9.8B to 9.4B YoY. Considering a 3-4% decline in store count (of big boxes) and a 10% drop in sales, that's an awful lot of inventory which will put pressure on margins. And if you've visited stores lately, you could rightly wonder where is the inventory anyway?]]> Mon, 24 Aug 2009 00:17:21 -0400
Basically it's a contest to see if Lampert can keep a poor retailer he hasn't invested money in (preferring to buy back stock) alive long enough to realize any value on the assets, at some point over the horizon. Thsi quarter's numbers are a blow to the idea that he can.

Sure, all retailers have been affected by the GR, but SHLD has clearly been the laggard. They've also been trapped by their Real Estate to an extent. They own and have long term leases on plenty of poor performing store, so even though they're closing about 80 boxes this year they've still got plenty of dogs left.

One thing I didn't see mentioned was the inventory which only dropped from 9.8B to 9.4B YoY. Considering a 3-4% decline in store count (of big boxes) and a 10% drop in sales, that's an awful lot of inventory which will put pressure on margins. And if you've visited stores lately, you could rightly wonder where is the inventory anyway?]]> http://seekingalpha.com/news/market_currents/post/27035?source=feed#comment-569343 569343 Tue, 30 Jun 2009 21:38:45 -0400 http://seekingalpha.com/article/141393-retail-chain-store-sales-take-a-dive?source=feed#comment-532431 532431 Thu, 04 Jun 2009 17:10:26 -0400 http://seekingalpha.com/article/140755-why-i-bought-wal-mart-and-sold-sears?source=feed#comment-528413 528413
Ultimately we will find out the liquidation value of SHLD because that day is approaching.]]> Tue, 02 Jun 2009 13:53:52 -0400
Ultimately we will find out the liquidation value of SHLD because that day is approaching.]]> http://seekingalpha.com/article/139939-borders-group-inc-f1q09-qtr-end-05-02-09-earnings-call-transcript?source=feed#comment-520078 520078 Wed, 27 May 2009 15:49:01 -0400 http://seekingalpha.com/article/139224-eddie-lampert-heads-into-memorial-day-a-happy-man?source=feed#comment-514906 514906

On May 22 03:43 PM Stone Fox Capital wrote:

> The average investor still doesn't get the SHLD investment. I'd advise
> everybody to stay out of the stock until you understand the balance
> sheet. An investment is never just about the revenue or the quality
> of service.
>
> At just $100/sq ft the real estate of roughly 250M sq ft is worth
> $25B. Anybody think thats expensive b/c I don't? The stock currently
> just trades for $7B. Now argue that you don't understand why the
> stock goes up.]]> Fri, 22 May 2009 16:24:34 -0400

On May 22 03:43 PM Stone Fox Capital wrote:

> The average investor still doesn't get the SHLD investment. I'd advise
> everybody to stay out of the stock until you understand the balance
> sheet. An investment is never just about the revenue or the quality
> of service.
>
> At just $100/sq ft the real estate of roughly 250M sq ft is worth
> $25B. Anybody think thats expensive b/c I don't? The stock currently
> just trades for $7B. Now argue that you don't understand why the
> stock goes up.]]> http://seekingalpha.com/article/126809-sears-has-no-balance-sheet-problem?source=feed#comment-433727 433727
Sears/Kmart is a pretty unwieldy retailer. They sell clothes, shoes, toys, hardware, appliances, automotive and auto repair, groceries, electronics, repair services. They're involved in more segments of retailing than any of their competitors are involved in individually. Except for Walmart, they occupy more locations and sq ft than any of their competitors. The problem is, given the number of product lines they are in and the sq ft they sell out of, $45B ain't that impressive. Their avg sales per store or per sq ft is the worst of their competitors. Their gross margins are weak. It doesn't take much more downward pressure on sales or margins before half or two-thirds of the stores become unprofitable. Do you shut down half the stores? Abandon entire regions or media markets? How do you maintain the value of the brands if you have to slash the store base?

Again, I don't think SHLD is a bankruptcy candidate, but it's a weak retailer and it's greatest asset, the real estate, will not be in demand for some time. The RE/Credit collapse has wiped out any hope for a huge upside for SHLD.]]> Fri, 20 Mar 2009 12:48:45 -0400
Sears/Kmart is a pretty unwieldy retailer. They sell clothes, shoes, toys, hardware, appliances, automotive and auto repair, groceries, electronics, repair services. They're involved in more segments of retailing than any of their competitors are involved in individually. Except for Walmart, they occupy more locations and sq ft than any of their competitors. The problem is, given the number of product lines they are in and the sq ft they sell out of, $45B ain't that impressive. Their avg sales per store or per sq ft is the worst of their competitors. Their gross margins are weak. It doesn't take much more downward pressure on sales or margins before half or two-thirds of the stores become unprofitable. Do you shut down half the stores? Abandon entire regions or media markets? How do you maintain the value of the brands if you have to slash the store base?

Again, I don't think SHLD is a bankruptcy candidate, but it's a weak retailer and it's greatest asset, the real estate, will not be in demand for some time. The RE/Credit collapse has wiped out any hope for a huge upside for SHLD.]]> http://seekingalpha.com/article/126809-sears-has-no-balance-sheet-problem?source=feed#comment-432334 432334
Sears-Kmart had 55B in sales in 2005. Last year, they had 46.7B in sales and this year it will be 43B. That's a more than 20% drop, so reducing inventories is a natural and correct response to declining sales though it's no indication that they become any more successful at managing inventories and thus gross margin. In fact, they seem to have a ways to go in right-sizing inventory. You are correct that lower inventories mean they should have less need to tap the revolver.

SHLD main problem is that their capex and SAG expenses are already at the bottom (bare bones) of the industry so they just don't have as many ways to cut costs as several of their competitors do. If the EBITDA number keeps collapsing to the level of the capex number, then lenders and suppliers will get very nervous.

It was interesting that SHLD actually borrowed against the Sears Canada and Orchard Hardware cash instead of tapping the revolver. It may make their 10K look prettier, but it also means that cash won't be used to buy back anymore stock or make acquisitions (which were pretty much out of the question anyway).

SHLD is a lousy retailer (with the exception of Sears Canada which is OK) and the longer they live, the lousier they will get. The Eddie Era was all about riding residual customer loyalty until he could monetize the assets. The whole real estate/credit collapse has thrown a huge monkey wrench into that plan so he has to keep Sears/Kmart alive until a better day. It's a 50-50 shot. Don't see a huge upside here (I think brand value is way overrated and will erode as Sears sales erode), but don't see a huge downside either as the Real Estate and Sears Canada and Lands End provide some value in the case of liquidation.

]]> Thu, 19 Mar 2009 11:31:26 -0400
Sears-Kmart had 55B in sales in 2005. Last year, they had 46.7B in sales and this year it will be 43B. That's a more than 20% drop, so reducing inventories is a natural and correct response to declining sales though it's no indication that they become any more successful at managing inventories and thus gross margin. In fact, they seem to have a ways to go in right-sizing inventory. You are correct that lower inventories mean they should have less need to tap the revolver.

SHLD main problem is that their capex and SAG expenses are already at the bottom (bare bones) of the industry so they just don't have as many ways to cut costs as several of their competitors do. If the EBITDA number keeps collapsing to the level of the capex number, then lenders and suppliers will get very nervous.

It was interesting that SHLD actually borrowed against the Sears Canada and Orchard Hardware cash instead of tapping the revolver. It may make their 10K look prettier, but it also means that cash won't be used to buy back anymore stock or make acquisitions (which were pretty much out of the question anyway).

SHLD is a lousy retailer (with the exception of Sears Canada which is OK) and the longer they live, the lousier they will get. The Eddie Era was all about riding residual customer loyalty until he could monetize the assets. The whole real estate/credit collapse has thrown a huge monkey wrench into that plan so he has to keep Sears/Kmart alive until a better day. It's a 50-50 shot. Don't see a huge upside here (I think brand value is way overrated and will erode as Sears sales erode), but don't see a huge downside either as the Real Estate and Sears Canada and Lands End provide some value in the case of liquidation.

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Pershing has also loaned BGP 42.5 million dollars last year that was initially due Jan 15th (today) and now has been extended to Feb 16th. Pershing obviously has been far more entangled with with BGP for some time now and in fact Ackman's investment in BKS may have been an attempt to influence BKS into buying out BGP. The Riggio brothers didn't bite and Ackman sold out of BKS, or perhaps, alternatively, Ackman needs the money and BKS could be sold for cash while BGP could only be sold for pennies.

Not sure why Ackman got into the book business in the first place since his involvement in retail stocks seems to be heavily focused on real estate plays. His ownership of SHLD (which he tired of) his TGT holding (which he pitch a real estate scheme to, which TGT has ignored) and his recent inexplicably foray into GGP (which he seems to think will provide equity to shareholders in BK because of the real estate) . Even his short term play on Longs Drugstore placed heavy emphasis on the CRE value. The bookstore play just doesn't fit into that. Maybe Ackman just likes to read.]]> Thu, 15 Jan 2009 11:09:41 -0500
Pershing has also loaned BGP 42.5 million dollars last year that was initially due Jan 15th (today) and now has been extended to Feb 16th. Pershing obviously has been far more entangled with with BGP for some time now and in fact Ackman's investment in BKS may have been an attempt to influence BKS into buying out BGP. The Riggio brothers didn't bite and Ackman sold out of BKS, or perhaps, alternatively, Ackman needs the money and BKS could be sold for cash while BGP could only be sold for pennies.

Not sure why Ackman got into the book business in the first place since his involvement in retail stocks seems to be heavily focused on real estate plays. His ownership of SHLD (which he tired of) his TGT holding (which he pitch a real estate scheme to, which TGT has ignored) and his recent inexplicably foray into GGP (which he seems to think will provide equity to shareholders in BK because of the real estate) . Even his short term play on Longs Drugstore placed heavy emphasis on the CRE value. The bookstore play just doesn't fit into that. Maybe Ackman just likes to read.]]> http://seekingalpha.com/article/107515-barnes-noble-pussyfooting-around-leases?source=feed#comment-315074 315074
I saw that dividend number too, that plus the fact that Borders is on it's deathbed certainly maked BKS look like a nice opportunity, though it has bounced quite a bit off of it's low in the last few days.]]> Tue, 25 Nov 2008 18:50:08 -0500
I saw that dividend number too, that plus the fact that Borders is on it's deathbed certainly maked BKS look like a nice opportunity, though it has bounced quite a bit off of it's low in the last few days.]]> http://seekingalpha.com/article/107715-target-decides-to-let-stock-languish?source=feed#comment-314920 314920
I'm not sure Ackman values anything other than getting a pop out of stock so that he can exit the position. Ackman's track record with Borders doesn't exactly suggest he'll be anymore successful with Target, and of course Target is strong enough in it's own right that it doesn't have to be bothered by Ackman.]]> Tue, 25 Nov 2008 15:24:18 -0500
I'm not sure Ackman values anything other than getting a pop out of stock so that he can exit the position. Ackman's track record with Borders doesn't exactly suggest he'll be anymore successful with Target, and of course Target is strong enough in it's own right that it doesn't have to be bothered by Ackman.]]> http://seekingalpha.com/article/101995-is-the-media-partially-responsible-for-the-panic?source=feed#comment-291056 291056 Sun, 26 Oct 2008 19:51:15 -0400