assetvalue

Sears: Retail Blues Equal Stock Greens

Unlike WMT and TGT, the current retail results have nothing to do with that value of SHLD from it current price.

At $35/shr, SHLD has an Enterprise Value of $6.58 billion. They own (not lease) 94 million square feet of retail space, of which about 75% is in malls (vs. K-Marts, etc.). That means the real estate they own is being valued at $70/sq ft.

In comparison, Simon Properties has an Ent Value of $28.5B and owns about 250MM sq ft (75% of which is in Malls), for a valuation of $115/sq ft. This is with its stock down 50% since September. About 6 months ago, before the big sell-off, Centro Properties sold 5.1 MM sq ft of retail space for $714 million or $140/sq ft.

So just based on the RE they own (not lease), SHLD seems to trading at a 40% discount to Simon. Oh and by the way, they also own Land’s End, the brands Kenmore, Craftsman and Diehard, as well as Sear’s Home Services (siding and cabinetry) business, another 15MM sq ft of distribution centers, and Billions in inventory. Lastly, they have leases on another 200 million sq ft of retail space. Ackman and others have said that much of this space is under 99 year leases with very favorable terms like $1/yr. I’m not sure what percentage is under those favorable terms, but it actually doesn't matter at this point as there’s a huge margin of safety here.

And to figure out how to maximize the value of these assets, we get Eddie Lampert at the helm, and he’s using all the cash flow to buy back the shares. So each retail disapointment is actually beneficial in that Lampert can buy back more shares at 25-50 cents on the dollar.