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Did Anyone Attend the Sears Annual Meeting?


Matson125
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I went.  The focus seems to be 100% on the retail turnaround at this point.  There wasn't too much discussion about total return swaps, real estate liquidation, or any financial types of activities.

 

Some random thoughts...I didn't take detailed notes.

 

They are trying all sorts of experiments.  Looks like bringing back layaway at K-Mart was a huge hit and they got the timing just right with the economic environment (Walmart got rid of layaway in the past year or two).  One interesting slide was same store sales comps by quarter...the same store sales declines at sears have been pretty steady (say, about -4% a qtr).  Whereas, for many competitors, the bottom fell out in Q4'08, especially specialty retail.  Lampert commented that compare a -4, -4, -4, -4 to a 0, 0, 0, -26 (abercrombie) and you'll see Sears relative performance actually improved over the year compared with other retailers.

 

Also, they gained relative share in appliances (up to 36% in Q4 '08) compared with the low 30s for the 1st few qtrs, and gained share in every quarter.  Of course, the absolute number was down, just like everyone else.

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Other points, they have reorganized into 26 or 28 operating business units, each with their own P&L, so that the pricing is transparent and people start to make decisions that are based on profit instead of previously, where the merchants only made decisions based on increasing sales.  Called the previous system a "socialist" system, where everyone runs as slowly as the slowest runner.  Have attracted a lot of new talent lately (half the business unit leaders are new in the last year).  Whether this is good or not remains to be seen...seems like they have a retention issue (my observation, not Lampert's comment). 

 

Lampert was really excited about the mygofer idea, that they are testing in joliet illinois, where you order online and drive thru to pick up your stuff without setting foot in the store.  Was saying it would save a lot of time for things that you are not excited about shopping for (toilet paper, etc).  Thinks it might be a new paradigm for shopping.

 

Also excited about my sears community, which is an online place where customers can give feedback.

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Online businesses seem to be doing well, albeit from a very low base.  Either traffic or sales (can't remember) were up 100% year over year and that would be the best for any big brick and mortar retailer.  Said that they were not Amazon, and Amazon is very good at what they do, but have other capabilities (in-store pickup, home services) and have to figure out how to leverage the group of capabilities that they have.

 

Re brands, didn't sound like they were really doing the licensing thing anymore.  Seems like the economic environment also derailed that.  Said he wanted Kenmore, Craftsman to become aspirational brands, said to be like Apple or Nike (he said probably a stretch).

 

Also, thought they felt further along than the results had showed.  Said if the economy was better he thought it would have given them a better picture of how well they were doing.

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Re the buyback, he said that of course they wish they had waited but he feels they were at least as well off having done the buyback at higher prices than any alternative thing that they would have bought.

 

Seemed confident about being able to renew the credit line.  Said they were in negotiations with banks as reported in the press.

 

When asked about possible acquisitions, said something like they are always looking and they have seen lots of things, especially lately, but wanted to focus on getting the customer experience / operational issues right first and that was their main focus.

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Re the buyback, he said that of course they wish they had waited but he feels they were at least as well off having done the buyback at higher prices than any alternative thing that they would have bought.

 

hmmmm, a little disappointed by this attitude re the stock buybacks. whta's wrong with letting cash accumulate on the bal sheet til quantifiably 'good' investment opportunities reveal themselves?

 

i do like this comment by lampert tho:

 

<<Other points, they have reorganized into 26 or 28 operating business units, each with their own P&L, so that the pricing is transparent and people start to make decisions that are based on profit instead of previously, where the merchants only made decisions based on increasing sales.  Called the previous system a "socialist" system, where everyone runs as slowly as the slowest runner.  Have attracted a lot of new talent lately (half the business unit leaders are new in the last year).  Whether this is good or not remains to be seen...seems like they have a retention issue (my observation, not Lampert's comment).>>

 

thnx for the annnual meeting notes, snailslug.

 

 

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Thx Snailslug.  While I have never looked at Sears from an investing pov (I own and root for WMT, which I believe will keep destroying their competitors), I do wish Lampert the best and hope Sears will find a profitable niche going forward

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Thx Snailslug.  While I have never looked at Sears from an investing pov (I own and root for WMT, which I believe will keep destroying their competitors), I do wish Lampert the best and hope Sears will find a profitable niche going forward

 

Yes, one more thing Lampert did say is that the business of the future is not going to look like the business of the past and may be considerably smaller.

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Will they be putting any money into renovating Sears & K-Mart stores? I know Eddie has said in the past that he didn't that that would be a good investment, but almost all the Sears & K-Mart stores I've been in in the last several years are disasters. They haven't been renovated in what looks like 20-30 years. On top of that, they just can't compete with Walmart, Home Depot, Lowes, etc on pricing.

 

SHLD has been looked at as a real estate play more than anything else, but in order for their real estate to have value, that assumes companies would want to by their stores. Many of their stores are in beat-up old buildings and not always in great locations. I think people overvalue their real estate.

 

Otherwise, their top brands like Kenmore, Craftsman and Diehard aren't really that good and have no competitive advantage. You can easily find better alternatives to those brands in each of their categories (Kenmore and Craftsman more than Diehard, but still). Other than the stock being below book value, I see no reason to want to own their stock. I think it would take a very large amount of money for them to turn the company around.

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Will they be putting any money into renovating Sears & K-Mart stores? I know Eddie has said in the past that he didn't that that would be a good investment, but almost all the Sears & K-Mart stores I've been in in the last several years are disasters. They haven't been renovated in what looks like 20-30 years. On top of that, they just can't compete with Walmart, Home Depot, Lowes, etc on pricing.

 

Wasn't specifically asked, but he did say that they were openminded to sub-leasing the space to outside operators (i.e. leasing the space to Levi's, for example) or changing the way that they allocate the space between the business units.

 

It kind of makes sense why he's so high on the mygofer idea though, because that could generate a lot of incremental sales without having to spend a lot of money remodeling.  Whether they can actually make it work or not though is the question.

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SHLD has been looked at as a real estate play more than anything else, but in order for their real estate to have value, that assumes companies would want to by their stores. Many of their stores are in beat-up old buildings and not always in great locations. I think people overvalue their real estate.

 

But in many other cases, their stores (more the Sears ones than the KMart ones) are in very prime real estate locations.  In many cases, it's not the buildings that are valuable but the land/location.  Obviously, in the short run, this is compromised by the economic meltdown, but if you take a 5-10 year view like I believe Lampert does, the land could have a lot of value for things other than Sears stores.  Condos, office buildings, etc.

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Their stores in Jacksonville and Miami are fairly well maintained and attractive.  They could make their Kmarts more visible. 

 

They have spent some money on their Coral Gables store.  They installed some new, fairly nice looking tile surrounding the main entrance.  It looks nice and that land is worth probably a million an acre, especially if the zoning there is intensity inclusive and would allow multi-family construction. 

 

I'm not sure about the rest of the country.

 

I still don't see why so many people think the retailing is going to fail and he's just retailing it until something happens to make him want to liquidate (like the original Berkshire textile mills).  He's actually doing many smart things in addition to the Mygofer sales process.  Check out servicelive.com.  I think many people in general underestimate him.

 

Retailing isn't as bad as textiles!  I don't know what would make him liquidate that hasn't already happened.  Barring continued sales declines to zero, of course.

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Think people should spend time reading what Bruce Berkowitz has said about Sears. Can be found on his website in his talk to OID. Is the old 80/20 rule with 20% of the properties being worth 80% of the total amount. If you study Lampert, and get a good understanding of Sears you will understand that the odds are high in 5-10 yrs that it will turn out to be a great investment(especially at $25 share!).

 

Wisdom is knowing what to overlook as intrinsic value is not all science, but art as well! Handicap what Warren Buffett was going to do when he owned the textile mills... would have looked pretty bleak and most people probably would not invested due to many reasons(poor business, value trap, etc, etc). People that valued it differently have made a significant amount of money over the years. Don't be surprised when you actually begin to understand Sears inside and out that you see many things that you like and are similar to what Buffett did.

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It kind of makes sense why he's so high on the mygofer idea though, because that could generate a lot of incremental sales without having to spend a lot of money remodeling.  Whether they can actually make it work or not though is the question.

 

yeah, but companies like Walmart already do that, and are able to offer better prices. Sears doesn't really seem to have a concrete plan. They seem to just keep trying different things.

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Sears doesn't really seem to have a concrete plan. They seem to just keep trying different things.

 

Yep, that was exactly the sense that I got from the meeting.

 

However, they

a) are not spending a lot of money trying those things

b) have the balance sheet flexibility to continue trying things until something sticks

c) have the earliest of green shoots showing that some of those things are sticking (layaway, the blue crew appliance commercials have helped regain appliance marketshare)

 

So, will it work?  Not clear.  But, they have time.

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I think trying to merge Sears and K-Mart into one store might be a good step. They're heading that way with their websites, and I think combining the retail stores might be a good option. It would of course take a lot of money, but combining them and trying to revitalize 1 store with a new image might be better than trying to come up with plans for 2 crappy stores on their own. I think they should try to sell off the Kenmore, Craftsman & Diehard brands too, as as I mentioned before, I don't think they add much value to the company.

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I think trying to merge Sears and K-Mart into one store might be a good step. They're heading that way with their websites, and I think combining the retail stores might be a good option. It would of course take a lot of money, but combining them and trying to revitalize 1 store with a new image might be better than trying to come up with plans for 2 crappy stores on their own. I think they should try to sell off the Kenmore, Craftsman & Diehard brands too, as as I mentioned before, I don't think they add much value to the company.

 

Craftsman is a great brand... They are virtually the only hand tools that I will buy. Not only are they of good quality, but the unconditional warranty on them is awesome too. As a result, I am willing to pay 30% more for a better tool, that, in the event does break, probably won't be that much for them to replace/fix... on the flip side of that, their power tools, for the most part, suck.

 

Not saying that is what gives the company value, or anything of that nature, but I think that the craftsman brand is worth a decent portion of their market cap.

 

I find it ironic that BDK trades for about 1/3 market cap as SHLD... If a good marketing person came along, I would imagine that they could turn craftsman into a contender with BDK in just a few years.

 

For what it's worth, I think that people overestimate Kenmore and Diehard, yet underestimate craftsman... but maybe I'm partial.

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