Sears Holdings

This posting is about a big whopper of a mistake I made back in the early 2000's. When Eddie Lampert took over K-mart on the auction block and then deftly merged Sears and K-mart Mr. Lampert was showing why his investment skills at the time were considering some of the best. He had bought and sold several stocks and securities for his ESL Hedge Fund over the preceding decade and had made boatloads of money for his investors. He was at the time talked about as being the heir apparent to Warren Buffett. Yes, he was that good. His specialty had been taking over ailing retailers and turning them around and then selling them for nice gains. When he merged Sears and K-mart into Sears Holdings most people thought he would do the same for them. Witness that Jim Cramer bought into this idea too, so I was in good company.

Sears Holdings had everything going for it. Great management and real estate locations that others wanted. Mr. Lampert went right to work and began cutting costs and trimming staff. The results were nice added cash flow which he put to good use buying back stock. The investment world responded by pushing up SHLD stock from about $12 to almost $200 per share. I got in around $120 and of course was happy with the gains and the options trading income. Mr. Lampert was getting lots of praise as well.

As Mr. Lampert's management went on things began to top out as Sears began to show why it is no longer what it once was retailer wise and of course K-mart was old news too. Those of us old enough to remember can tell you there was a time that Sears was top dog. Owning a Sears credit card in the 1970's was considering a badge of honor. Investors convinced themselves that even though the business model for Sears Holdings was slowing the real estate holding would make up for any concerns. Truth be the real estate portion of Sears Holdings is indeed most valuable being at great mall locations, highly sought urban locations, and were back in the early 2000's being requested for purchase by other retailers such as Walmart and Target.

Unfortunately the economy went bust and the desire for real estate went down too. There are some locations Sears Holdings owns still being sought, but not like before. The downturn also did a number on the business of Sears Holdings. Never a strong suit, but when people got tight with their wallets they looked for more inexpensive places to shop. The company is longer turning in nice profits and the accompanying stock buy backs have dwindled as well. Sears Holdings is not the darling they were when Mr. Lampert took over.

I got out of SHLD around $80 per share and licked my wounds. During the bottom of the economic downturn SHLD traded under $40 per share, Today it is in the low $70. I frankly can not see it moving much anywhere but down going forward. There simply is no profit to plow back into the company and unless the economy turns around there is trouble ahead.

Sears Holdings still is the country's largest appliance seller and it's name brand Kenmore is still considered a major brand. The Craftsmen tools brand is without question the most desired tools for professionals anywhere. I suppose Sears Holdings could reduce their offering at stores to those brands and likely survive, but that restructure would be a tall order. Of course their is the K-mart stores and what to do with them too. Maybe liquidate at today's fire sale prices and move forward. Frankly it is anybody's guess where Mr. Lampert will go next. But if anyone can do it he is likely the person.

SHLD is one big risky bet if you are into serious betting. Count me out on the risk.