Hedge fund manager and investing savant
formed Sears Holdings (
) out of Sears and a Kmart emerging from bankruptcy in 2005.
While several respected investors also poured money into the
company, over the years, performance has been lumpy even as he as
chairman has increased his control of the company, culminating in
the installment of Lampert as CEO in January and fourth quarter
results released today.
For the fourth quarter of 2013, Sears Holdings reported mixed
results compared to the prior-year quarter. Adjusted EBITDA was
up for the fourth consecutive quarter, to $429 million, in line
with its guidance of Jan. 7, 2013, and up from $351 million in
the prior-year quarter. Sears Domestic's comparable store sales
improved 0.8%, and its gross margin rate increased 130 basis
Its net loss from continuing operations narrowed slightly to $489
million and $4.61 per diluted share, from $498 million and $4.70
loss per diluted share in the third quarter.
Revenues decreased to $12.3 billion from $12.5 billion in the
prior-year quarter. The decrease resulted primarily from the
separation of its Sears Hometown and Outlet businesses, the
effect of having fewer Kmart and Sears full-line stores and lower
comparable store sales, the company said.
Sears' shares fell a further 5.2% on Thursday, to a market price
of $45 per share in afternoon trading, bringing its total drop
over the past 12 months to almost 35%.
"Sears Holdings made progress in 2012 improving the profitability
of our business, but we know there's more work to be done in
2013," Lampert said in a statement. "Our focus continues to be on
our core customers, our Members, and finding ways to provide them
value and convenience through Integrated Retail and our SHOP YOUR
WAY Membership platform. We have invested significantly in our
online ecommerce platforms, our Membership rewards program and
the technology needed to support these initiatives."
Sears announced on Jan. 7 both its fourth quarter financial
update and that
would take over as the company's fifth CEO since he became
chairman, replacing Lou D'Ambrosio, who would retire.
Lampert thanked D'Ambrosio in a memo for "[guiding] Sears
Holdings during a time of rapid industry change to become a more
customer and Member-focused company and [positioning] us to lead
in Integrated Retail."
Although he has not served in a CEO capacity in retail before,
Lampert served as director for both AutoNation (
) until 2007, and AutoZone (
) from 1999 through, during which time the company's market price
increased approximately 338%.
In addition to a more hands-on role, Lampert increased his share
count recently by 0.79% on Jan. 10, three days after announcing
his new role as CEO. With approximately 46.6 million shares, he
owns just over 40% of the company.
Another well-known investor who is bullish on Sears is the
. He owns over 18 million shares after increasing his stake by
1,212,493 shares in the fourth quarter. It was his largest
purchase of the company since the first quarter of 2011.
Berkowitz is also planning to reap great returns from Sears debt.
"We expect 2013 to be a watershed year given our current focus on
the debt of two companies, MBIA (
) and Sears (
), which comprise 55.1% of the Fund's assets. MBIA parent company
debt is 33.9% of the Fund. Sears Holdings debt represents 16.7%
and the surplus notes of MBIA's subsidiary comprise 4.5%," he
said in his Fairholme Focused Income Fund fourth quarter letter.
"We believe that Sears will continue to pay all scheduled
interest and principal on its debt obligations. If all bonds were
to trade to par, the Fund's NAV would be much higher even with
39.6% cash and equivalents - a 'barbell' strategy," he added.
(See Berkowitz's case study on Sears here.)
Berkowitz has recently seen much-questioned bets on troubled
financials such as Bank of America (
) and AIG (
) pay off.
Other Gurus interested in Sears include Whitney Tilson, who
initiated a position in the company in the fourth quarter, and
Jeremy Grantham, who increase his. Francis Chou and Chuck Akre
own smaller holdings of Sears, which remained unchanged in the
Looking ahead, Lampert as leader of the company is counting on
driving growth primarily through investing in its integrated
retail and membership program, leveraging its social and
ecommerce online platforms, its supply chain capabilities and
stores, he said in his 2013 annual letter.
As a hedge fund manager of his $9 billion ESL Investments,
Lampert delivered returns of 25% on average annually through the
first 14 years since inception in 1989.
See the other stocks in Lampert's portfolio here. Also check out
the Undervalued Stocks, Top Growth Companies, and High Yield
stocks of Edward Lampert.About GuruFocus: GuruFocus.com tracks
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