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SHLD JAN 2011 $5 Put


Matson125
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Hi All,

 

I'm not sure if anyone on this board has seen this but there is a market for SHLD Jan 2011 put with a stike of $5.  For Sears to get to $5 there would have to be a major permanant imparement, which has a very low probability of happening with Lampert at the helm and especially within a years timeframe.  Has anyone taken a look at this or can poke a hole in my thinking?

 

Cheers

 

Michael

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I seen the bid was 0.05 as I wrote the  original message however the price has been in the last few days.  I sold a small amount of puts at 0.25 on Nov. 17.  It is a very good possibility that with the release of the Q today investors realized that the situation wasn't as bad as first thought.

 

Cheers

 

Michael

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Guys, this kind of thing is literally picking up nickels in front of a steamroller.  This will be a great strategy. You'll make money 99% of the time, and you'll feel like it's 'free'.  Then you'll add a little weight and start making more money.  Then one day, 20 years from now, your life savings will be vaporized by something totally out of left field.

 

I own SHLD and Bonds, but this is not a sound idea in my opinion.  AIG did this same thing with RMBS... it's a great idea until it isn't anymore.

 

Ben

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Earlier in 2009, I wrote the SHLD $15 Jan 2011 put contracts for $1.30.  My logic was that Eddie L. would buy the company out at this price.  Plus, if I kept $1,500 for each contract (which isn't always the case), I would still be earning a decent % on my cash.

 

The person that commented on getting "vaporized" is absolutely dead on - it is important to be able to manage risk.  The 99% wins aren't necessarily worth the 1% loss. 

 

I write a lot of puts - I think a nice rule is that you write no more exposure than 50% of your portfolio.  In the instance of the black swan event (your portfolio goes down 50%), you could still meet the exposure (assuming all your positons were put to you) on margin.

 

Keep in mind that I always keep some cash in my portfolio, which lowers the risk here.  50% is also the highest I will ever go on exposure - maybe other readers would be comfortable with 25% or even less.

 

Please keep in mind that Warren Buffett has used this strategy over the past several years - the differences being he wrote puts on entire indices as well as using longer time horizons available to most (both differences reducing risk IMO).  Has anyone noticed that Buffett is pretty smart.

 

One thing that I forgot to mention is that I tend to buy back the puts after a 50% gain.  I then try to wait for a pullback in the market, and start the process over.  Some readers may hate this strategy...just my 2 cents.  As a small investor, I try to create my own "float", which is just another way of using leverage.

 

 

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  • 1 year later...

The short squeeze in SHLD continues.

 

My guess is because the market is going nuts for the LIZ spinoff.

 

If Eddie and SHLD did the same thing? 

 

BAM!!! To the MOON!!

 

http://www.usamarketnews.com/stock-market-updates/7157/stocks-on-the-move-at-nasdaq-–-liz-gmr-fro-nbg.html

 

Liz Claiborne, Inc. (NYSE:LIZ) gained +32.55% to $6.76 with the total traded volume of 9.18 million shares beating the average volume of 3.31 million.

 

http://dealbook.nytimes.com/2011/10/12/liz-claiborne-sells-portfolio-of-brands/

 

Liz Claiborne continues to clean out its closet of brands.

 

The women’s apparel maker on Wednesday announced the sale of its namesake brand and Monet to J.C. Penney, with Bluestar Alliance buying Kensie. The transactions, along with the recent sale of its Dana Buchman brand to department store Kohl’s, will generate $328 million in cash proceeds, the company said.

 

 

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Does anyone have an estimate of what the brands (DieHard,Craftsman, Kenmore, Lands End, etc) are worth?

 

I tried to find a breakdown of numbers(sales, profit) for these in their recent 10K and 10Q but could not find anything.

 

I did read several weeks ago from one of our board member's blog that a comparable set of brands has a current market value of $19 billion.

 

Owns >100 million sq ft of real estate-  Is this right?

 

Brands + >100 million sq ft of real estate all for a EV of ~ $10 billion.

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Does anyone have an estimate of what the brands (DieHard,Craftsman, Kenmore, Lands End, etc) are worth?

 

I tried to find a breakdown of numbers(sales, profit) for these in their recent 10K and 10Q but could not find anything.

 

I did read several weeks ago from one of our board member's blog that a comparable set of brands has a current market value of $19 billion.

 

Owns >100 million sq ft of real estate-  Is this right?

 

Brands + >100 million sq ft of real estate all for a EV of ~ $10 billion.

 

Hard to say what the brands are "worth".  They paid close to $2 billion for Lands End in 2003.  I have in my notes that Lands End does around $1.6 billion in annual sales (no citation though).  So, $2 billion seems a little generous, but probably fine as a ballpark.  It seems unlikely that the real value of the brands is anything close to $19 billion.  Although, the new licensing deals will probably provide a lot of good data for what the potential of those brands really is.

 

Owned land is a little under 100 million sqft.  I haven't updated my spreadsheet on that in a couple years though, so it may have dropped a bit more recently.  The value of the real estate is tricky though.  Owning 100 million sqft and having leases of various lengths and terms for another 200 million has significant value.  Is it more than $10 billion?  Maybe.  But, the trick is how and when you monetize it. 

 

Right now the real estate is trapped inside a relatively poor retailer.  When and how they unlock the value will determine how good a deal SHLD is at current prices.  I think the current economic environment will postpone or limit the upside to that unlocked value.  The $100+ per share of real estate that got value investors all excited 5 years ago, is still locked up.  Until recently, I didn't worry much about exactly what the real estate was worth because the retail operations were actually not too bad from a cash flow perspective.  That's changed in the last year or two, so the hidden break-up value is becoming more important.  It's still there, but how and when does it get unlocked?  I'd guess Lampert has his own timeline, and has the luxury of doing things at his own speed.  As a minority shareholder, though, I want to see it unlocked sooner rather than later -- because that later may very well be after Lampert takes the whole thing private.

 

 

 

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http://www.bloomberg.com/news/2011-10-12/sears-said-to-seek-agent-to-license-craftsman-diehard-brands.html

 

Sears is circulating a proposal for its Craftsman tool, Kenmore appliance and DieHard battery brands, said the person, who declined to be identified because the process isn’t public.

 

Under a licensing model, Sears would receive a fee to use its name on products. That differs from a current agreement with a handful of retailers including Ace hardware stores and Costco Wholesale Corp. (COST), where Sears sells its own products and shares profits with the other merchants.

 

Expect the short squeeze to continue on Thursday.

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Owns >100 million sq ft of real estate-  Is this right?

 

Brands + >100 million sq ft of real estate all for a EV of ~ $10 billion.

 

 

Owned land is a little under 100 million sqft.  I haven't updated my spreadsheet on that in a couple years though, so it may have dropped a bit more recently.  The value of the real estate is tricky though.  Owning 100 million sqft and having leases of various lengths and terms for another 200 million has significant value.  Is it more than $10 billion?  Maybe.  But, the trick is how and when you monetize it. 

 

 

biaggio and zarley, where did you guys find the breakdown for ownership vs. long-term leases for SHLD?  I took a quick look at the annual report, but I must have missed it...

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biaggio and zarley, where did you guys find the breakdown for ownership vs. long-term leases for SHLD?  I took a quick look at the annual report, but I must have missed it...

 

Mine is an estimate.  I took a breakdown of owned vs. leased stores by type (K-Mart, K-Mart SuperCenter, Sears, Sears Essentials, etc) and multplied by an average size per format.  As I recall, the data came from the 10k, the sears website, and probably google searches about the size of each format.

 

Looking at the feb 2011 10k, there is a lot of good info in the business description section.  And, the table of owned vs. leased is around page 13.  I haven't updated my spreadsheet in a while, but it looks like a lot of what is needed is right in the 10k.  Interestingly, the number of owned stores has actually gone up a little bit since I did my estimates.

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This video was posted on this site previously.  Bill Ackman on Bloomberg.  Within the video he comments how JCP controls 110 million ft of real estate and values is at around 15B.  Not surprisingly he was a shareholder of Sears at one point but sold his sahres as he doesn't want to deal with control investors. Sears current Marketcap 7.5B

http://www.gurufocus.com/news/147306/bill-ackman-interview-with-bloomberg

 

Cheers

 

Michael

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Thanks Zarley.

 

I agree with your post.

 

It never occurred to me that shareholders could be "taken under" if that is the right term, by Mr Lampert. His large stake and the apparent hidden assets is what led me to my small holding (~2%).

 

Hope you re right ValueBargainHunter. Look forward to ongoing short squeeze.

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http://sec.gov/Archives/edgar/data/1310067/000119312511062911/d10k.htm

 

from the 10K

 

Kmart

1,278 discount stores, averaging 93,000 square feet, x own 177 (16.46 million)

 

29 Super Centers, averaging 169,000 square feet,x own 20 (3.38 million)

Sears Domestic operations consisted of the following:

 

Full-line Stores—894 broadline stores, of which 842 are full-line stores located across all 50 states and Puerto Rico. These stores are primarily mall-based locations averaging 133,000 square feet. x own 514 (68.36 million)

 

Essentials/Grand stores located in 24 states. These stores are primarily free-standing units averaging 117,000 square feet x own 17 (1.99million)

 

Specialty Stores

 

938 Sears Hometown Stores—Primarily independently-owned stores, predominantly located in smaller communities and averaging 7,700 square feet x 938 own (7.2 million)

 

59 Sears Home Appliance Showrooms—Innovative stores averaging 5,100 square feet  x not specified how much if any they own

 

106 Sears Hardware Stores and 89 Orchard Supply Hardware Stores—Neighborhood hardware stores averaging 42,000 square feet  x not specified how much if any they own

 

12 The Great Indoors Stores—Home decorating and remodeling superstores, averaging 143,000 square feet  x not specified how much if any they own

 

Lands’ End has 14 retail stores, averaging 8,600 square feet x not specified how much if any they own

 

own 38 domestic supply chain distribution centers,

 

l executive offices are located on a 200-acre site owned by us at the Prairie Stone office park in Hoffman Estates, Illinois. The complex consists of six interconnected office buildings totaling approximately two million gross square feet of office space. In addition, we have a campus in Dodgeville, Wisconsin supporting the corporate headquarters, distribution center and customer sales/service operations for Land’s End. We also own an 86,000 square foot office building in Troy, Michigan

 

I am getting ~98 million sq feet on what I can see in the 10K

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It never occurred to me that shareholders could be "taken under" if that is the right term, by Mr Lampert. His large stake and the apparent hidden assets is what led me to my small holding (~2%).

 

For me, that remains the biggest uncertainty.  What is Lampert's plan, and how might that unfold?  I suspect he knows exactly what he's doing and will be successful in unlocking the value in SHLD.  I think the economic downturn has impaired whatever operational improvements he had hoped to make in the retail business and probably put a little crimp in the real estate values.  Given that he holds over 60% of the shares (directly and through ESL), I'm curious about why SHLD continues to buy back shares--he doesn't need to solidify his control.  So, he either still sees the shares as significantly undervalued or he has designs on just methodically reducing the share count until he and Berkowitz are the last guys standing (maybe both).  If he does want to take it private, it would be in his best interest to have it undervalued in the market when he moves to buy out the minority shareholders.  Not to impugn Eddie's character, but I bet he didn't get as rich as he is by going out of his way to be nice to the little guys who happen to be in the way of his plans, so I don't expect an overly generous offer if and when one comes.

 

SHLD is a small position for me ~5%, but has been much larger in the past.  I've opportunistically sold at pretty good prices in the past year or so.  Considered buying more recently under $60, but passed.  The retail end is pretty crappy and the uncertainty about Eddie's plans make it hard to put more into.  Besides, there have been some other good bargains around in companies that are in better businesses.

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Here's an old, but still relevant, post I did on my blog: http://mevsemt.blogspot.com/2010/11/transaction-alert-sears-holdings-2013.html.  If you click on the "zz Sears" label on the right you can see all my Sears posts.

 

As for a "take under" I think it's highly unlikely.  For example there's Autozone.  In 1997 Eddie began building his AZO stake through ESL and quickly acquired enough shares to get himself elected to the Board.  Between 1997 and 2001 AZO's stock bounced around madly, going back and forth between 20 and 40-ish.  During this time Eddie used a massive buyback to shrink Autozone's share count from 150 to 100 MM (btw I'm sure there were plenty of people saying things like "he was buying back shares at 38, and now they're at 20, so clearly he doesn't know what he's doing...").  Fast forward to today and the stock trades at $300+ and share outstanding is something like 40 MM.  In fact, if you look at the 15 year chart there's almost nothing like it.

 

www.mevsemt.blogspot.com

 

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Not new but relevant:

 

http://www.kiplinger.com/columns/picks/archive/2008/pick0812.htm

 

Of course, this all could be part of Lampert's secret plan: Let Sears struggle and continue to buy back shares as the stock falls. Then, when the stock gets low enough, take Sears private and really turn it around. Then go public again for the financial coup of the century.
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