Sears Posts Large Loss as Revenue/Margins Decline

scott

I'd be curious to see an update on the thesis from FAIRX.

SHLD - 6%.

http://online.wsj.com/articles/sears-holdings-posts-large-loss-1408617340

"Sears posted a loss for the quarter ended Aug. 2 of $573 million, or $5.39 a share, compared with a loss of $194 million, or $1.83 a share, a year earlier. Excluding costs of closing stores, certain tax matters and other items, the company's per-share loss was $2.87.

Revenue fell 9.7% to $8.01 billion, while gross margin slipped to 21.7% from 24.6%.

Sales at existing locations edged down 0.8% at domestic stores. Sales rose 0.1% at its namesake locations, but Sears noted they would have grown 1.6% excluding the impact of consumer electronics. The company's Kmart stores suffered a 1.7% decline, dragged down by electronics and by its grocery and household-goods business."

bee

Here's a one liner on Sears from the FAIRX July 2014 letter:

"Sears remains the Fund’s least successful investment, yet has the highest potential based on our estimates of tangible values."

BBRY seems to fall into this category of companies that are not able to or are unwilling to achieve their full potential.

My question, "How long do you wait?"

fairholmefunds.com/show_pdf.php?file=http://www.fairholmefunds.com/sites/default/files/FAIRX.PDF#pagemode=bookmarks

JohnChisum

I'm wondering what potential they see in Sears?

bee

@JohnChisum,

I have often heard that Sears is more valuable as a Real Estate company (collecting rental leases) on the shopping centers they own. Of course, like BBRY's patents, real estate is an asset that doesn't move stock markets and therefore is undervalued by Wall Street.

Maybe they stop trying to be a retailer and focus on being a real estate management /development company.

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MrRuffles

bee said:

@JohnChisum,

I have often heard that Sears is more valuable as a Real Estate company (collecting rental leases) on the shopping centers they own. Of course, like BBRY's patents, real estate is an asset that doesn't move stock markets and therefore is undervalued by Wall Street.

Maybe they stop trying to be a retailer and focus on being a real estate management /development company.

That was Eddie Lampert's prime motivation in taking over Sears. Unfortunately, with the 2008 real estate crash and much of Sears' real estate in dying malls and poorly located shopping centers, he's now stuck running two retail dinosaurs with no incentive to invest in them.

Not sure how much more he can squeeze out of this rock after spinning off Sears & Orchard Hardware, Sears Outlet, and Lands' End.

rjb112

Fairholme research estimates that the fair value of sears’ net assets exceeds $150 per share. If our research is accurate, we expect sears’ market price of $38 to increase to this value over time.

Well, good luck Bruce. Maybe Sears will increase to greater than $150/share. But here's what the market says it is worth right now:

JohnChisum

We have talked about Sears before and I have heard about the real estate value. To me, this fund is holding a dinosaur with no place to get rid of it. This is a popular fund here at MFO but due to the Sears chunk of the portfolio, not a fund I would buy.

I guess the big question is when do investors say enough is enough and cut the cord?

Bitzer

@JohnChisum At the risk of sounding like a broken record, I will say my inability to answer that question for myself is why I hold mostly index funds

davidrmoran

I love Sears, always have. Have bought lots of things there over the decades. Tried tonight to do so again, nice item on terrific sale. Used my Sears card to get an extra few bucks off, beyond free shipping. Card is not expired. But it has been canceled due to inactivity (couple of years since a big, or big for us, dryer purchase). Called to find out wtf and was told inactivity, but I could apply online for a new card and get all the discounts and place one order. Woohoo. But online application failed for some reason. So I called Citibank and had to be interviewed and go through past employers and housing. Approved! Then was told I could (meaning must) pick up my new card at a Sears store, after showing driver's license. No online, no nothin' tonight. I went back to the online purchase and paid for it with my Fido Amex, best card ever, which cost me an $2 compared with Sears card purchase.

I realize these are rich people's problems, wanh wanh, but I always wonder what those with less perseverance wind up doing. I mean, I know the answer. Poor Sears. I am going to miss them. Great place to buy all sorts of things are good prices. Nice stores and staff too.

scott

http://seekingalpha.com/news/1948615-sears-burns-through-another-750m-eyes-balance-sheet-help

Sears Burns Through Another $750M, Eyes Balance Sheet Help

"Sears' (NASDAQ:SHLD) operations burned through another $747M as it lost another $573M in a dismal Q2, prompting it to say in its earnings call that it is weighing additional steps to shore up its balance sheet."

"...; it also could issue debt against its real estate, similar to what J.C. Penney did last year when it secured a $2.25B loan with mortgages on its property."

"Fitch analyst Monica Aggarwal expects Sears to need $2B in cash in 2014 to fund operations and cover pension, interest and other obligations, but she is not optimistic: "We don't see them having the levers to turn this business around."

http://blogs.barrons.com/stockstowatchtoday/2014/08/21/sears-the-downward-spiral/

"Gross margins declined 242 bps y/y in Sears Domestic, implying that it was buying sales through discounts and free delivery as consumers do not otherwise see the value of shopping in one of the worst service stores in America."

bee

davidrmoran said:

I love Sears, always have. Have bought lots of things there over the decades....Poor Sears. I am going to miss them. Great place to buy all sorts of things are good prices. Nice stores and staff too.

One of Sear's best efforts...we have many of these beautiful homes in our town...you probably do as well:

The Top Four Most Popular Sears Homes--Have You Seen These?
the-top-four-most-popular-sears-homes

JohnChisum

I grew up in a house that we discovered later on was a Sears house. Looking at the pictures, one can see many familiar models.

Edit: to add, Montgomery Ward or Monkey Ward as we called them when we were little, also had home kits for sale through their catalog.

Sven

Sigh! The good old days when life was simpler.

JohnChisum

"Sigh! The good old days when life was simpler."


You mean the days back when as kids we could play all over the neighborhood, and beyond sometimes, without any fears as long as you were home by supper time?

Double sigh , those were the days indeed. I remember them well. Sadly, it's a different world and society we are in. At least we have those memories. Today's kids will have memories of .............. playing video games?

scott

JohnChisum said:

"Sigh! The good old days when life was simpler."


You mean the days back when as kids we could play all over the neighborhood, and beyond sometimes, without any fears as long as you were home by supper time?

Double sigh , those were the days indeed. I remember them well. Sadly, it's a different world and society we are in. At least we have those memories. Today's kids will have memories of .............. playing video games?

Yes, I do have memories that involve video games (still have an XBOX 360 and I think the most compelling aspect as someone who enjoyed video games as a kid is that instead of something staged that happens the same way every time, now I can sit and play against someone in another country), but I'm happy that a pretty large part of my growing up was pre-internet. Homework for me for a large part of growing up was going to the library and actually looking through microfilm and that thing called a card catalog.

I'm glad I didn't go to school as a kid in the age of Twitter and Facebook. When you left school for the day that was it. You could kind of turn off that aspect of your life or talk to friends if you wanted to.

So, yeah, I do love my smartphone, but I'm glad I got to experience a childhood where you actually, you know, had to go to the library to do homework instead of using Wikipedia.

davidrmoran

>> experience a childhood where you actually, you know, had to go to the library to do homework instead of using Wikipedia.

That was great, and wikipedia can be extremely weak (at best, sometimes), but my young-adult kids are way better-informed, especially much more widely informed, at a younger age, than I ever was. The web is useful like nothing else for those with discernment. Guff and gulling and much worse get spread more readily, of course.

scott

"That was great, and wikipedia can be extremely weak (at best, sometimes),"
Well, Wikipedia as an example of a source was more of a joke, but I think the enjoyable balance is that I look back very fondly on actually having to go somewhere to research something as a kid (I'll never forget having to sit there and pull microfilm, then have the giant machine make a copy - a bad copy, usually - of something. and yet, adore my smartphone. Pre-web was such a different time and even pre-social media. I was social as a kid, but I know I would never have wanted to have to constantly have the school social life be "always on" somewhere in the form of Twitter and Facebook.

If anything, being around during the evolution of the web and before makes me appreciate the information age of today even more. Heck, I did homework as a kid on a typewriter until we got Apple IIes or IIcs or whatever it is we had.

Sven

@Scott, Talking about pre-PC days,I used to program my HP 14c calculator to do physics homework. These days Excel can do all these tasks and much more. I also started with Apple Classic as my first PC and it costed over $4,000 - no joking.

JohnChisum

I must be the old one here. I used pencil and paper except in high school where a slide rule was required.

Those early calculators and computers were expensive indeed. We have come a long ways since. Today's iPad has more power than anyone could have foreseen back then.