An Inside Look At Why Sears and Kmart Never Turned The Corner

Longtime readers of this blog will remember that for a while I was a believer in Eddie Lampert’s ability to breathe new life into Kmart and Sears by more efficiently allocating capital within the companies. I started writing about the investment idea in 2005 and followed up probably a dozen or two times over the years. Although the investment was a profitable one for me and my clients (I sold long ago after it was obvious that Lampert was not going in the same direction as many of us had expected), it was also one of the most frustrating investing situations I can remember because so much potential was squandered. Had Lampert used the profits from Kmart and Sears (yes, they actually did make decent money for a while under his ownership) to diversify into other, more attractive businesses, Sears Holdings could have been a huge success. Instead, he honestly believed that a hedge fund manager could run a retailer (from his office in Connecticut) better than retailing veterans could from the company’s headquarters outside Chicago (he has not).

If you are interested in some of the behind the scenes that has gone on at Sears and Kmart in recent years (it’s been an absolute debacle), Bloomberg BusinessWeek has published an excellent article that can be found at the link below:

At Sears, Eddie Lampert’s Warring Divisions Model Adds To The Troubles

It’s a great read. And no, the stock is not a bargain today. At the current price ($45 per share), the company has an equity value of $5 billion and another $3 billion of net debt. I can’t see how the enterprise is worth $8 billion. That said, the company’s debt looks interesting (I think it’s money good).

Full Disclosure: Long Sears Holdings bonds at the time of writing, but positions may change at any time

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One Thought on “An Inside Look At Why Sears and Kmart Never Turned The Corner

  1. This was a really fascinating read. I’ve read and agreed with your previous posts about SHLD and I took a look of my own at it a while back. I didn’t understand how folks like Berkowitz think there’s so much value to be extracted from Sears when its assets are either illiquid or

    I never really bothered to look at the management aspect (already passed, why bother?) so it was eye-opening to see the behind-the-scenes chaos. My favorite bit, from the official spokesman (!):

    “Clashes for resources are a product of competition and advocacy, things that were sorely lacking before and are lacking in socialist economies.”

    At first it made me laugh, then it made me kinda bummed out for all the folks working at a company where coherent business plan = socialism.

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