fcharlie

Retailers Face a Volatile January - Barron's

The funny thing about SHLD, it really has come down to two sides. On one side, you have the people who dislike the company, the stock, or both. They typically mention the appearance of the stores as the #1 problem, and typically claim the company will go bankrupt. These people, however, cannot give a logical, thought out explanation, from a financial viewpoint, as to how SHLD goes bust. When asked, they constantly change the subject, and mention some other gripe they have, such as, Lampert is manipulating the stock, or Lampert hired someone from Lehman Bros. (i assume to imply his intentions are to wreck his own company), or Lampert is starving the stores of capital, or Kmart cannot compete with Wal-Mart, therefore it is not relevant.

On the other side, you have people who look at SHLD and see the assets, see the free cash flow, see the debt decreasing, see the shares being bought back, and see the big picture. These people understand that there is more to SHLD than just a busted retailer. Lampert has admitted that Kmart cannot compete against Wal-Mart on price, he is quoted as saying that the only way for Kmart to remain relevant is to run the business for maximum cash flow.

And on the subject of his "manipulating" the stock... Let's remind ourselves of all the companies that spent billions buying back stock at prices significantly higher than today, not just SHLD. Many companies borrowed billions to repurchase shares. Home Depot borrowed billions to do a Dutch Tender at $37 share. Target borrowed $10 billion to buy back stock in the $50's... Cheesecake Factory borrowed hundreds of millions to buy back stock in the high teens and twenty's. Lowe's bought back billions in the $30's. New York Times? We won't even talk about their buybacks. Every one of these companies have since suspended their buybacks at prices a fraction of where they were once leveraging to repurchase. SHLD still is buying, and has reduced debt every year... and LAMPERT is the idiot????? I think not.

People often cite same store sales with SHLD, and claim that because they are down 9%, Lampert is wrecking the company.... Let's not forget to look at Target's same store sales, Gap, American Eagle Outfitters, Limited Brands, Barnes & Noble, Home Depot, Lowe's... etc... Where has all the money they've spent on store remodels gotten them?

The more crap i hear about SHLD and Lampert, the more the contrarian in me loves it. He's taking full advantage of the negativity buying back stock at 1/2 of book value. He's still among the best capital allocators out there, and he's got significantly more skin in the game than all of us combined.