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Eddie Lampert Still Showing Conviction on Struggling Sears, Adds Almost 5 Million Shares

January 12, 2012 | About:
Holly LaFon

Holly LaFon

261 followers
Sears’ floundering business and sinking share price are just an opportunity for Eddie Lampert to buy more shares, apparently. Lampert’s investment to save Sears has been compared to Buffett’s early days with Berkshire Hathaway (BRK.A)(BRK.B), although his recent buys confirm he is not anywhere near conceding defeat with the company. Lampert, founder of ESL Investments where he has made a 29% average annual return, is also chairman of Sears (SHLD), which has had 18 consecutive quarters of declining sales.

According to GuruFocus’ Real Time Picks, his holding of the company increased 10% in January and he now owns 53,050,284 shares, or just shy of 50% of the company. In a total of four purchases from January 9 to January 11 he bought 4,870,529 shares at a range of $29.20 to $30.99 per share. The stock has declined almost 38% in the last three months and has a 52-week range of $28.89 to $94.79.

The most noticeable recent break in Sears’ share price occurred around Dec. 27, 2011, when it dropped from almost $46 to under $34 amid disappointing earnings results. On December 27, Sears reported a 5.2% quarter to date drop in sales, and a 2.6% year to date drop in sales. Sears Domestic saw the worst decline, led primarily by decreases in consumer electronics and home appliances.

Sears also announced ominous fourth-quarter guidance, with an expected Adjusted EBITDA of less than half of last year’s amount. As a result of the weak performance, the company said it plans to close 100 to 120 Kmart and Sears stores.

More bad news ensued on Thursday when CIT Group (CIT) ceased providing loans to Sears’ suppliers to finance their shipments to stores, Reuters reported. If other lenders do the same, it would significantly hinder Sears’ ability to do business. Kimberly Freely, spokeswoman for Sears, told Reuters it still “has more than adequate liquidity and ample resources at our disposal."

Lampert may be placing faith in new managements’ ability to turn the company around. In August, it hired Robert A. Schriesheim as Executive Vice President and CFO. In January, Sears hired Ron Boire, the former president and CEO of Brookstone, as chief merchandising officer, executive vice president and president, Sears and Kmart formats. Boire also has experience at Toys “R” Us, Best Buy and Sony Electronics. His primary task will be to integrate customer experience across stores, online, services and mobile.

"We are in the midst of a transformation of our business, from top to bottom, as we seek to become the leading integrated retailer in the country," said Lou D'Ambrosio, Sears Holdings' chief executive officer and president. "By attracting someone with Ron's significant experience in retail, merchandising and product development as well as in leading companies through turnarounds, we're adding a key talent in accelerating our transformation."

The company is also selling at attractive valuations, such as a historical low P/B of 0.4 and tie for historical low P/S ratio of 0.1. By comparison, Walmart (WMT) has a P/E of 12.59, P/S of 0.46 and P/B of 3.04. Macy’s (M) has a forward P/E of 12.84, P/S of 0.56 and P/B of 2.5. Lampert said in his 2010 shareholder letter that he would manage Sears for long-term gains, meaning results might disappoint in the short term as they strive to reach long-term goals, which he could believe is the case currently.

However, the cash flow Lampert mentioned in his 2010 letter he was partially relying on to put to use to generate long-term value for shareholders is waning. In 2010 it reached $1.2 billion, but in 2011 the company had a loss of $276 million. Sears’ cash has also decreased from over $2 billion in January 2011 to approximately $1.3 billion in October 2011.

Another guru heavily invested in Sears is Bruce Berkowitz, who owns 15.2% of the company, and has lost an average of 49% on it. Lampert, on the other hand, paid about $16 per share for the company, so is still making a profit, even at the depressed current share price of $34.


Rating: 3.6/5 (16 votes)

Comments

chrisgeody
Chrisgeody - 2 years ago
the shares were transferred from esl to mr. lampert. he increased his personal stake by taking his carried interest in form of shld stock.

tonyg34
Tonyg34 - 2 years ago
to further clarify.

Mr. Lampert purchased shares of SHLD from RBS in order to meet shareholder redemptions
superguru
Superguru - 2 years ago
Tonyg34 - What is RBS?
tonyg34
Tonyg34 - 2 years ago
RBS partners is one of the ESL hedge funds, unless I'm just making that up

http://dealbook.nytimes.com/2012/01/12/sears-chief-buys-shares-but-his-reason-is-unclear/
superguru
Superguru - 2 years ago
thanks, that NYT article is great read and makes things clear. Title of gurufocus article is somewhat misleading.
AlbertaSunwapta
AlbertaSunwapta - 2 years ago
This is subject to check, but in the 1970s, didn't Warren Buffett buy Berkshire Hathaway shares from his dissatisfied or otherwise parting partners too?
ranjitsudan
Ranjitsudan - 2 years ago
Sears needs to generate free cash flow for Lampert to overhaul whole company. With negative FCF, low on cash, loaded with debt; not sure how they will inject liquidity into the company. They will either have to raise more debt, issue more shares, sell stores to generate cash. You can find better bargains in current market then punting on turnaround!; which could take years.

PHILCIR
PHILCIR - 2 years ago


Sears needs to generate free cash flow for Lampert to overhaul whole company.

where are the customers going to come from to generate the increases in c/f. Sears = Kodak.....check out the article in the economist on Kodak.

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