Sears (SHLD)

[HenryTo]

Sears Holdings - a hedge fund favorite (and Bill Miller's Value Trust's ninth largest holding) dramatically lower this morning:

http://www.thestreet.com/_yahoo/newsanalysis/retail/10392140.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

And here I thought I had missed out on buying a piece of Eddit Lampert after yesterday's dramatically rally.

[HenryTo]

I've been tardy in my reading - I've only just had a chance to read Eddie Lampert's February 28th letter to shareholders:

http://www.searsholdings.com/invest/

This is the part I liked best, especially in the general deleveraging environment I am looking for over the next 12 to 24 months:

[rffrydr]

He put the lotto in Sears.

I think this should be bought somewhere in this downturn: here in California they've basically become the hispanic go-to place. That's only getting bigger (Marque dos por ingles). And then their tools carry on with the mechanic trade--high margins. And "whitegoods" for the 50 and over crowd. Their online presence with store pickup works well (their catalogue really was the internet's first iteration) and as more and more online dealers get taxed (look for this to increase with state finances what they are).

And then there's their real estate holdings. If McDonnell can get this why not sears?
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Eddie Lampert has been the favorite "whipping boy" over the last few weeks. Following is courtesy of the WSJ:
---------------------------------------------------------------------------------
Lampert Admits Flubs, Sees Sears Turnaround
Chairman Says Repairing the Retailer
Will Take Longer Than Expected
By GARY MCWILLIAMS and GREGORY ZUCKERMAN
January 30, 2008; Page B1

There are no elixirs for corporate turnarounds, says Edward S. Lampert, chairman of Sears Holdings Corp., who acknowledged in an interview yesterday that he should have moved faster to revamp the troubled retailer.

The 45-year-old hedge-fund billionaire made clear his disappointment at misreading the economy last year and says Sears will address the company's latest financial swoon.

On Monday, Aylwin B. Lewis, CEO of Sears Holdings for less than 2½ years, was ousted, and a search began for a manager to lead a business restructured into a five-unit holding company. Mr. Lampert, who has much of his own wealth tied up with Sears through his investment firm and has been accused of micromanaging the company, also announced that parts of the business will no longer report to him.

Speaking by phone from the company's Hoffman Estates, Ill., headquarters, Mr. Lampert bristled at critics who lost faith in Sears as its share price fell from $195 in April 2007 to about $104 now. Sears Holdings was formed in 2005 when Kmart Corp. merged with Sears, Roebuck & Co. and took the Sears name. The stock's performance since Kmart emerged from bankruptcy in May 2003 is a healthy 900% gain. "Instead of [the share price] being up 20 times since we took control of Kmart in 2003, it's up 10 times. The decline from our highs is in line with other department-store retailers."

He complains that Wall Street analysts have swung between two extremes, from praising the company a few months ago to savaging it now. Analysts have said Mr. Lampert has invested too little in upkeep of stores and that he hasn't made the major changes required to turn around the company. In the past three quarters, profits at the retailer have declined on a year-to-year basis despite new marketing, online and sales initiatives.

"What we're trying to do is not for the faint of heart," Mr. Lampert says. "This is a big challenge. We're trying to build a great company." He says he understands investors' doubts about turning the business around, because both Sears and Kmart have struggled for years to increase sales. But the criticism hurts efforts to keep existing employees and attract new ones, he says.

Critics have recently likened Mr. Lampert's efforts to rearranging the deck chairs on the Titanic. To this, he responds, "I'm OK with whatever the criticism is, but I need to make people understand there is a way forward."

Mr. Lampert is dealing with heavy personal losses from Sears's recent stumbles. He's told investors in his ESL Investments Inc. that virtually his entire net wealth is tied up in the hedge fund, except for personal real estate.

He concedes the five-year turnaround he envisioned at Sears three years ago will take longer than that to achieve. But he says he's never been interested in swapping long-term profit for short-term gains. He believes his new plan can reinvigorate the 121-year-old retailer in a way not otherwise possible.

The past two years have taught him it wasn't enough to put good managers in a structure that didn't work. "I used to think getting all those people in a room was enough. We got collaboration, but at the end of the day, there was no one who owned the decision. That's what we're trying to drive here," he says.

The new design, he says, will allow managers running individual businesses to make their own choices rather than relying on corporate bosses. "In a large company, the structure is very, very important. That's the thing, I feel, we haven't been able to get right," he says.

The restructuring won't happen overnight. There will be conflicts between managers over decisions on whether to sell real estate or divest themselves of brands that invariably will need to be resolved by the new holding-company CEO. But he sees such disagreements as no different than those dealt with by any CEO overseeing a portfolio of businesses.

Other large, complex businesses have successfully adopted the business-portfolio model. He compares Sears with Warren Buffett's Berkshire Hathaway Inc., in which managers are given a long leash to run businesses, and Mr. Buffett doesn't get involved in their day-to-day operations. He also says Sears can be rebuilt with a strong management culture, similar to General Electric Co., and Procter & Gamble Inc.

Mr. Lampert described the company's next CEO as a "mission-driven" leader who feels comfortable balancing multiple interests. "I want someone who will be able to deal well with complexity, who will be able to make decisions under conditions of uncertainty, and is someone people will want to step up and work for."

He pointedly says he's not looking to give up his chairman's title.

Mr. Lampert has often stressed that he doesn't focus on same-store sales performance as others do in the retail business, arguing that profits are much more important than sales. As such, he has pushed Sears to focus on more profitable sales. But he acknowledges that recent results have been disappointing.

"We were on the path to achieving 10% Ebitda [earnings before interest, taxes, depreciation and amortization] to sales," he says, referring to a metric comparing how much cash profit comes from each sale. "As, you can see from our recent results, we've fallen off that path and we need to get back there."

He wants to see more "transformational" ideas, which can be as simple as "better assortments, better marketing, better presentation. ... We've been at it awhile but it takes awhile," he says.

Mr. Lampert says he isn't worried about backlash from unhappy investors in his hedge fund, whom he will meet with next month.

He wouldn't comment on ESL's performance.

Mr. Lampert has never disclosed many details about his strategy to investors in ESL. For years, that didn't matter because Mr. Lampert turned in outsize performance at the fund.

But last year, ESL lost more than 25%. He raised even more money from investors, including Goldman Sachs Group Inc. and wealthy clients of the firm, last summer -- right before tumbles in shares of Sears and other ESL holdings, such as AutoZone Inc., the auto-parts retailer, and banking giant Citigroup Inc.

[HenryTo]

Barron's on SHLD: