After Sears Holdings (SHLD, Financial) shares tumbled nearly 12% on Bruce Berkowitz (Trades, Portfolio)’s announcement that he would exit the company’s board of directors Monday, he issued a statement Tuesday saying he continued to have confidence in the investment:
Dear Investors:
In January 2016, I was invited to express my views to the Board of Directors of Sears Holdings Corporation (the “Board”). As I indicated in a public conference call the next month:
“I took that opportunity to explain [to the Board] Fairholme’s investment perspective on the company as a whole, as well as its various business units. This included our view regarding the need to preserve the enormous value of its assets and the imperative to promptly return to profitability. I focused on the cash burn, and how the continuation of the cash burn does not build confidence or trust among all of Sears’ constituents … [including the company’s] customers, vendors, suppliers, employees, creditors, and investors. I also discussed my belief that eliminating the cash burn will do more to optimize the value of Sears’ assets than any other action … I recognize that most do not understand the vast asset base at Sears, and I recognize that most do not understand the complexity of optimizing all of the assets.”
Subsequent to that meeting, I was asked to join the Board as a Director. In accepting that invitation, I believed that my Board service would enable me to better communicate Fairholme’s perspective in substantially greater depth and detail than would otherwise have been the case. I believe that I have achieved that objective, and was pleased to have the opportunity to assist in developing the company’s strategic restructuring program, which was announced earlier this year.
From the start, I indicated to you that I would not accept Board compensation for my service and that, consistent with many of my past board memberships, my tenure on the Board would be as limited as possible.
You will not be surprised to hear that the assets of Sears Holdings have enormous value, and that remains my view today. As the company continues to progress in executing its strategic restructuring program, I believe that I can now be of more value from outside and have therefore elected to step down from the Board at the end of this month. The Schedule 13D that was filed yesterday evening makes clear that Fairholme clients continue to beneficially own a significant interest in the common stock of Sears Holdings. Indeed, Fairholme has not sold a single share to date in 2017.
Respectfully,
Bruce Berkowitz (Trades, Portfolio)
Chief Investment Officer
Sears shares have lost 96% of their value over the past decade, as the historic retailer once fetched north of $190 per share in 2007. An activist filing from Oct. 14 shows that Berkowitz remains the company’s largest shareholder with a 26% stake. Since investing in 2011, Berkowitz has lost approximately 90% on the holding but kept faith in a turnaround strategy helmed by his hedge fund peer, Sears CEO Eddie Lampert.
Berkowitz summarized his investment thesis in Sears as recently as Aug. 8, citing the “huge value in optimizing” its valuable assets and an accelerated operational restructuring, with $1.25 billion in annualized cost savings. He also highlighted the company’s partnership to sell Kenmore appliances along with services on Amazon (AMZN, Financial) and its “Shop Your Way” personalized shopping program.
Lampert assumed the role of chief executive at the struggling department store chain in 2013 and launched several changes. In 2015, he used its real estate to create real estate investment trust Seritage Growth Properties (SRG, Financial). He also spun off some of its most famous brands, Lands’ End Inc. (LE, Financial) in 2014 and Stanley Black & Decker Inc. (SWK, Financial) in January, to raise cash to keep the company afloat.
Programs and promotions to lure shoppers also failed to revamp the company, which experienced its tenth consecutive year of declining revenue in 2017. It also remained unprofitable since 2012, with losses topping a billion dollars every year but 2013.
As of July 29, Sears had $442 million in cash and long-term debt totaling $3.5 billion.
