While Sears Holdings (SHLD) reported Q4 numbers on Thursday that were basically in line with expectations, the big news was it finally hired a full time CEO. Possibly the even bigger news was the hiring of a CEO with a tech background. Lou D'Ambrosio is best known for being chief executive at Avaya as well as 16 years at IBM.
Read the Chairman's Letterand it leaves little doubt why Eddie Lampert went with a tech savvy CEO. The only doubt is whether it was just to revolutionize the online experience of shopping at Sears and Kmart or if he hopes his experience of leading the Avaya (AVAYAGCL.NS) going private transaction would be beneficial to Eddie and his ESP Partners' investments. Note the heavy stressing on how the Avaya transaction delivered attractive results to shareholders.
From reading the letter it is clear that Eddie has his sights set on transforming SHLD into a viable competitor to Amazon.com (AMZN), but one that has stores for either picking up merchandise or returning unwanted goods. He also has focused on the move to smaller stores more accessible to shoppers wanting to interact with online ordering and away from the large full service operations. The bigger stores that are being kept are leasing free space to the likes of XX1 Forever (Forever 21 concept) and Whole Foods wherever possible.
I must admit that the Mygofer.com option is appealing. Why not order standard items online and pick them up at the store on a weekly or monthly basis? Who really wants to walk around a massive Wal-Mart (WMT) store to buy dog food and soap every week? Unfortunately the service isn't yet available in my area so I've been unable to test it though it's up and running in 600 stores. Very intrigued to hear any experiences good or bad. The real concern is whether a weak operator like Kmart can actually deliver on the benefits and time savings.
Anybody following SHLD lately shouldn't be too surprised about the hiring of a tech CEO as opposed to a retail executive. Eddie has been making a push into the internet space and claims numerous awards for speed and website performance during the holidays. All rather amazing considering that the general concept is that Sears and Kmart shoppers don't actually exist and the ones that do are too old to use the internet. Ok, I'm being a little sarcastic but shopping online at Kmart.com far exceeds the experience in the store.
The rest of the letter provides for some interesting reading regarding public policy on job creation and shareholder value. It's well worth reading and he makes some interesting points on the media focus about Apple (AAPL) having a larger market cap then Microsoft (MSFT). His point is very valid that with a different cash policy, MSFT would most likely have a larger market cap today.
As far as Q4 results, which I still focus very little on, SHLD reported decent numbers as highlighted below. Nothing spectacular. The real story remains how Eddie plans to monetize the valuable assets and brands that SHLD has trapped within its behemoth retail structure. He has already shown his hand on the leasing of retail space inside existing Sears stores. The continual plan to shrink outstanding shares while hiring a CEO with experience on taking a company private is also very telling. That has been a market debated goal all along. Such an event isn't necessarily in the best interest of shareholders though and probably why Eddie stressed the success of the Avaya transaction.
As an investor though, I'm finally in tune with the retail plan for Sears and especially Kmart. Using existing stores more as distribution centers for online orders finally makes sense. Upgraded stores aren't needed to distribute those orders. Will it work or does it even matter? A positive retail operation would be very bullish for the stock, but it isn't needed to see significantly higher prices. Monetizing massively undervalued assets has always been the theme of the SHLD investment. This letter provided a lot more insight into that process. With the stock down 5% on those announcements, the market apparently didn't appreciate the approach, though that isn't anything new with this stock.
Holding the stock until the picture becomes clear to all investors.
Details on Q4 via SHLD PR:
- Net income attributable to Holdings' shareholders for the fourth quarter of $374 million ($3.43 per diluted share) in 2010 and $430 million ($3.74 per diluted share) in 2009 and for the year of $133 million ($1.19 per diluted share) in 2010 and $235 million ($1.99per diluted share) in 2009;
- Adjusted earnings per diluted share for the fourth quarter of$3.67 in 2010 and $3.69 in 2009 and for the full year of $2.07 in 2010 and $3.19 in 2009;
- Adjusted EBITDA of $933 million for the fourth quarter of 2010 and $1.453 billion for fiscal 2010;
- These results were within our previously announced range (see calculation in the attached schedule "Adjusted Earnings per Share"); and
- An increase in comparable store sales at Kmart of 2.5% in the fourth quarter 2010 and 0.7% for fiscal 2010
Disclosure: I am long SHLD, AAPL, MSFT.
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