Gotta give credit where it’s due…. Sears Holdings (SHLD) CEO and Chairman Eddie Lampert writes a pretty good shareholder letter. His 2013 letter offers the kind of detailed analysis and pep talk that, on the surface, makes it clear he knows exactly why Sears is where it is, and what needs to happen in 2014 to bring the company and SHLD stock back to their former glory.
There’s just one problem with the written wrap-up of 2013 for SHLD stock owners — it’s a little too much like the one talking about 2012’s results and 2013’s plans.
It’s also amazingly similar to the one he wrote at the end of 2011, discussing that year’s lessons, and 2012’s agenda.
Indeed, when one reviews all of the grand plans of those past letters, then cross references them with the company’s actual results, you have to wonder how long shareholders are going to remain on the hook.
There are a handful of ideas from past shareholder letters, in fact, that might force holders of SHLD stock to rethink much of what Eddie Lampert believes are the keys to success in 2014.
Ghosts From Eddie Lampert’s Past
In Eddie Lampert’s defense, nobody can predict the future. On the other hand, those who are absolutely certain they know how things are can be dangerous to themselves and those around them.
Lampert falls into the latter category.
With that as the backdrop, check out these snippets from prior investor letters that seemed perfectly on-target at the time, but have since blown up in his face:
March 1, 2007: “As we look ahead, I want there to be no doubt about one thing: It is certainly our intention to grow Sears Holdings. Some commentators have asserted that we want to shrink the Company, but that is simply not so. No great company would aspire to become smaller, and we certainly do not.”
Eddie Lampert has closed more than 300 stores since 2010, and yes, some of them were highly profitable units.
Feb. 23, 2010: “Despite perceptions, we have not hesitated to open new stores when the economics make sense, including opening new Sears Outlet and Sears Hometown stores in 2009. With roughly 100 Outlet stores and almost 1,000 Hometown stores, these alternative formats represent both sources of profit and sources of growth for Sears Holdings. While both are small relative to the Kmart and Sears Full Line store formats, they serve their customers well and provide a Sears presence in smaller spaces and less populated communities.”
Two years later, the company spun off its Hometown and Outlet stores by issuing shares of Sears Hometown and Outlet Stores (SHOS) to SHLD stock owners … charging them for the right to receive what they technically already owned.
Feb. 24, 2012: “In my opinion, Sears Holdings has a profit problem, not a liquidity nor an asset problem. In fact, Sears Holdings has over $20 billion of assets on our balance sheet. In some cases, the fair market values of our assets are not reflected on the balance sheet due to GAAP convention, such as the value of our owned real estate and many of our below market leases.”
No liquidity problem?
While it’s true that Sears has a profit problem, yeah, it also has a liquidity problem. The ongoing liquidation of stores says so.
The proposed liquidation of Lands’ End — one of the company’s few bright spots — says so.
Moody’s is also worried about an uncontrolled cash burn, while Fitch has downgraded the company’s existing debt to “speculative” levels. ISI Group also said just a few days ago there’s a liquidity problem.
That’s an awful lot of disinterested brainpower seeing problems that Eddie Lampert somehow didn’t see coming.
So What Does It Mean for SHLD Stock?
The big “so what?” is, there’s no telling what to have faith in from Eddie Lampert’s 2013 wrap-up letter to Sears shareholders.