RGS

Sears' Nifty Purchase: Footstar Footwear

MC-

SHLD controls 266 million sqare feet of the best mall space in the US so if you apply an average cost of 185/sqare foot from 2007 you get a large margin of safety just on the real estate. Most people in the real estate business would quote a much higher number because of their prime locations in most cities but use the average to be conservative. (So you are still close to 50 Billion).

SHLD values their Brands like Kenmore, Craftsman, Land's End, Diehard among others at 3.8 Billion. So, assuming they sold at a big discount of say 40% you could apply a value of 2 Billion for the brands.

As you say their Retail Operations are miserable. I think Lampert would agree. There needs to be a new merchandising strategy for sure. But, as miserable as it is you still get 1.5 Billion of FcF out of it. If they can go from "miserable" to just "below average" you win. Plus they have done some pretty good things with the Sears/Kmart.com business. That is growing very nicely.

So, you have a recession/down cycle and a very poorly managed retail chain/s with no apparent strategy. Agreed. The investment thesis is based on Lampert either turning around the retail operations or monetizing the real estate so that he can start investing the excess cash (Lampert is very good at that over time).

One last thing.....there is a potential short squeeze that could be great fun. The hedge funds have leveraged up their positions so that you have 25 million shares on the short side. Of the 132 million shares outstanding there are about 100 million held by Value guys (they won't sell at these prices). Lampert won't say anything he just keeps buying back shares. There will be a quarter when SHLD surprises to the upside or announce a big deal (GE Appliances e.g.) and all of the shorts will try to cover at once and there will be no shares to buy....they will panic and you will get a big spike in price. If nothing else just buy a few shares here at 90-91/share and wait for it. The Fed is going to keep pumping money into the system and we will start growing and spending again and Consumer Descretionary stocks will all do much better even SHLD.

-RGS