Lampert and ESL files 13D/A in Autozone (AZO)
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Category: Articles
Frontline does it again….watching this though….does anyone else get the impression both Thain from Merrill (MER) and B of A’s (BAC) Lewis are….well…..”truth challenged”?
Disclosure (“none” means no position):None
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Lampert Sells AutoZone Shares
Look like Sears Holdings (SHLD) Chairman Eddie Lampert lightened up on his AutoZone (AZO) holdings. There were two filings with the SEC (see below)
Lampert AutoZone Sales II
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Interesting
Stuff like this I find interesting but do not use it to invest. File this under “gathering additional knowledge”.
This chart which was prepared many years ago by a Monk, shows when good and bad times have occurred and when they will occur again. Some outstanding dates were 1870 – the Franco-Prussian War – dear bread and scarcity of money in 1870, the Baring Crisis 1888-1890, 40 failures on the London Stock Exchange in 1888 to 1890, the American crisis of 1893, the South African War, 1899-1903, the Russo-Japanese War of 1904. 1915 speaks for itself, and so do 1931 and 1942. Recent recessions in the U.S. occurred in 1973-75, 1981-82, 1990-91 and 2000-2. The year 1999 was the peak of the high-tech boom and is shown at the top of the chart with the dismal down-turn indicated to last for 6 years to 2005. The current recessionary/deflationary leg may last till 2012!
This chart is a useful form of guidance for business transactions. Certainly, there is a case for giving it consideration. But in all transactions in commodities and securities there are individual factors which have to be taken into consideration. Sometimes those individual factors may go against the general trend.
(click to enlarge)
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Wednesday’s Links
Gas, Jobs, Art, Goldman
– A 12 month natural gas ETF to take out contango effect
– Why isn’t the CEO getting a liver transplant before he dies a “material event”?
– This is the way this ought to look
– Another reason government needs to stay out of business…they don’t understand it
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Taking a Very Close Look at Saks
Been looking around for more opportunities and this one caught my eye…
The Basics:
Saks, Inc. (SKS) is a leading retailer primarily offering high-end brand-name fashion apparel, shoes, accessories, and cosmetics. The company operates 53 Saks Fifth Avenue stores and 51 Off 5th units (off-price luxury goods). Discontinued Club Libby Lu, 11/08. Sold its department stores in 2004-2006. Saks Fifth Avenue stores carry merchandise from leading fashion houses. Key brands include Armani, Chanel, Gucci, and Prada. Has about 13,000 employees. Off. & Dir. own 3.2% of common stock; Inmobiliaria Carso (Carlos Slim), 17.7%; Baugur Group, 8.5% (4/09 Proxy).
For 2008:
On a consolidated basis, total net sales and comparable store sales for the year ended January 31, 2009 decreased 6.0% and 6.1%, respectively. The Company recorded a loss from continuing operations of $122.8 million, or $0.89 per share compared to income from continuing operations of $50.7 million, or $0.33 per share, for the years ended January 31, 2009 and February 2, 2008, respectively. After recognition of the Company’s after-tax loss from discontinued operations of $32.2 million, or $0.23 per share, net loss totaled $154.9 million, or $1.12 per share for the year ended January 31, 2009. After recognition of the Company’s after-tax loss from discontinued operations of $3.2 million, or $0.02 per share, net income totaled $47.5 million, or $0.31 per share for the year ended February 2, 2008.
Saks released results for its fiscal first quarter (ended May 2nd). The company lost $0.04 a share, much better than forecast of a $0.28 share loss. Cost controls drove the upside, as the company realized about $44 million in SG&A cost reductions in the quarter. For the whole of fiscal 2009, SG&A cost savings are expected to be approximately $60 million. Sales were down 27% on a year-over-year basis. Comparable-store sales fell 27.6%. Given the April period’s upside, and ongoing cost controls and inventory reductions, the company should lose about $0.50 a share this year, less than previous estimates of a $1.00 share loss.
Saks recently closed a convertible offering:
Saks granted the initial purchasers of its Notes an option to purchase up to $15 million principal amount of additional Notes, solely to cover over-allotments. The Notes will bear cash interest semiannually at an annual rate of 7.5%. The Notes will be convertible at the option of holders at an initial conversion rate of 180.5869 shares of common stock per $1,000 principal amount of Notes into, at Saks` election, cash, shares of Saks common stock or a combination thereof. The initial conversion rate is equivalent to an initial conversion price of approximately $5.54 per share of Saks common stock. The initial conversion price represents a premium of 25% relative to today’s closing sale price of Saks common stock. The Notes will not be redeemable before the maturity date, December 1, 2013. The Notes will be fully and unconditionally guaranteed by all of Saks` subsidiaries that are guarantors under its existing revolving credit facility. Saks intends to use the proceeds from the offering to pay down amounts outstanding under its revolving credit facility and for general corporate purposes.
The offering is interesting both for the interest rate being paid (just over 7%) and the conversion premium (25% higher than day of offering). Neither of those give an indication of a troubled company or heightened investor fear.
The NYC flagship store accounts for 21%of sales and 30% of company wide sales take place in Q4.
Owned v Leased locations (click to enlarge):
Catalysts:
Valuation
Saks currently sports a book value of $6.86 which means at its current $3.80 a share it trades at 56% of its book.
Even in a worse case scenario, in Chapter 11, Saks has $2.1 billion in assets v $1.1 billion in liabilities so there is plenty left for shareholders. Because they only own 1/3 of their locations, the current CRE problems will have limited effect on the “assets” side of the equation. When you couple that with the fact the locations they do own are prime RE, then that effect is even further diminished.
If we took an extreme scenario and wrote off 50% of the value of their RE, we still have a situation where assets 50%> liabilities, a nice 11 scenario for shareholders. The good news here is that their own RE is currently all unencumbered, giving them huge flexibility there.
They have $193 million is senior notes outstanding and of that, only $45 million is due soon and that is in Dec. 2010 and they have ample liquidity under a $500 million revolver that comes due 2011. No issues here…
The point here is not that I am anticipating bankruptcy, it is just a scenario we have to run when taking into account the risk if a $3 stock. This tells me that if I risk $3, even if they go belly up, I will retain some value. Should they avoid it a stabilize operations, the scenario I presume happens, then my end value is multiples of that $3, a very nice risk/reward.
Trends:
Right now “cheap is chic”. It will not last. With almost 1/4 of company sales coming from its NYC flagship, a sea change is not needed for results to change. What is simply needed is for those folks who normally shop there to feel secure in their job, home situation, tax situation etc. Once they see clarity on those issues, the cache of buying a handbag at Target (TGT) or Wal-Mart (WMT) vs their normal Gucci will loose its luster pretty quick.
Expanded to the rest of its operations, Saks locations in upper scale malls should see similar improvements.
The next question is “why not wait until we see things improving before buying?”. This was a $1.50 stock just a few months ago. Now it is near $4 after a quarter that was not nearly as bad as expected. Waiting another quarter or two may have you buying a $6 or $7 stocks (assuming improvements trend similarly) and severely cut into potential gains. Doing it this way requires more patience and also more homework, but the potential payoff is far larger.
Market Cap:
Saks only has 144 million shares outstanding and a market cap of just over $500 million. This simply means that an activist investor or small changes in the macro environment could have a out-sized effect on the stock appreciation. While this is not a singular reason to purchase the stock, IF you decide to buy it, this helps with the “should I buy it now” decision. Because the stock could make large leaps easily, waiting for confirmation of your purchase thesis may just price you out of large gains…
Latest anual report
Disclosure (“none” means no position):None
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AutoNation v Carmax
Here is a look at both AutoNation (AN) and CarMax (KMX)
My thoughts are this:
CarMax will hold up well during times of crisis,but, when that crisis ebbs (they always eventually do) AutoNation will outperform. Of the two, the current GM, Chrysler dealership shedding has far more benefited AutoNation in terms of its market share.
I also am not sold on the “used car” model longer term. Again, in times of stress it will, while not prospering, hold its own so to speak. I much prefer the diversity of options and product mix of an AutoNation.
Disclosure (“none” means no position):Long AN, none
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Marty Whitman Q2 Letter
Interesting things here is that 40% of the Third Avenue Value Fund (TAVFX) is now investing in Hong Kong
Marty Whitman Q2 Shareholder Letter
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Tuesday’s Links
Indeflation, Welfare, Oil v Gas, Roubini
– Chris nails it. We are in a period of commodity inflation due to scarcity and incessant money printing and deflationary asset prices. For those wondering, this is not good
– Are we surprised? Nothing out of Washington in terms of aid is actually tied to working or responsibility
– 6 reasons gas in a better investment than oil. I agree with all six.
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Sears Holdings: A Reader Submits
Reader Justin did some nice work on this presentation. Rather than blather on and add my two cents, I’ll let it stand on its own.
Disclosure (“none” means no position):Long SHLD
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Railroads….. "Green"
For those looking for “green investments”, the answer may just be rolling through cities and towns all over America.
For instance, Burlington Norhthern recently announced:
BNSF Railway Company (BNSF) today announced that it has developed a new tool that allows shippers to quantify the amount of carbon emissions that can be saved for those route segments on rail instead of over the road. Overall, shipping by BNSF can save Americans an average of 200 pounds of greenhouse gas emissions per American per year, which is the equivalent of planting 37 trees for each person living in the United States.
“Earlier this year, BNSF provided its customers with customized letters that analyzed their total rail carbon footprint and savings compared to movements of those shipments over the road,” said John Lanigan, executive vice president and chief marketing officer. “Because of the overwhelming positive customer response to this yearly analysis, we wanted to provide our customers with a tool they can use to determine environmental benefits before they make their transportation choice.”
The new BNSF Carbon Estimator tool bases its calculations on commodity type and weight, and distance traveled by rail. It also takes into consideration the different fuel efficiency of trailer, container or carload shipments, and incorporates the required truck movements to and from BNSF intermodal facilities. The calculations used by the BNSF Carbon Estimator and its accuracy have been verified by Clear Carbon Consulting.
“In addition to conserving scarce energy resources, rail provides tremendous value in reducing the country’s overall transportation emissions and carbon footprint,” Lanigan said. “In 2008, BNSF reduced our nation’s greenhouse gas emissions by 30 million metric tons by moving shipments over the rail rather than on our nation’s crowded highways. We hope this new tool helps our customers make greener transportation choices. After all, if you can’t calculate it, you can’t change it.”
Consider this:
Here is one thing to consider. It seems that some type of “Cap & Trade” system is coming down the pike. Could shipping by rail be part of it in order to reduce emissions? We know that it does, we just need to know if/how it is included in the legislation. If it is, that could be a huge boon to railroads, all of them. The first ones to look at would be those that serve industrial markets as those would be the heaviest emitters and thus those most likely to use rail in some fashion for carbon reduction means.
I have not looked any further into it other than postulating and won’t until the legislation gets out of the amoeba stage and into something tangible. At that point though, it does bear a much closer look because it very well could cause a substantial and permanent change in rail demand…
Disclosure (“none” means no position):None
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Dow Ag Still Up For Sale?
I thought we had put this to bed but this little item in the South China Morning Post caught my attention:
China National Chemical Corp, the mainland’s largest chemicals maker, has returned to the bidders’ table after Dow Chemical (DOW) restarted an auction for its agricultural chemical unit, Dow AgroSciences, which could fetch as much as US$7 billion, market sources said pitting ChemChina against Monsanto and Switzerland’s Sygenta, the world’s biggest farm chemicals maker. Sources told the paper that the odds are against a successful acquisition by ChemChina, as Monsanto (MON) and Sygenta’s businesses are more in line with those of Dow AgroSciences. ChemChina has previously rejected offers of a minority stake in the unit, favoring a takeover or joint venture. Chinese chemical firms such as Sinochem, Sinopec and ChemChina have been pursuing overseas acquisitions to expand their product offerings.
We need to look back here. Originally, Dow had planned have the Rohm purchase bridge loan of $9.5 billion down to a balance of $4.2 billion in 90 days. As of last mid-May, the loan is now down to $3 billion, meaning $1.2 billion additional has been paid off 55 days ahead of schedule according to the company.
Dow said it continues to look at its options to sell units. In addition to over $3 billion from the sale of Morton Salt, TRN, Calcium Chloride and other units, Dow is considering raising $4 billion to $6 billion from businesses in a successor to the K-Dow Petrochemicals deal or regional agreements; $1 to $2 billion from aromatics and derivatives.
Dow has also since then announced another $900 million in asset sales
Based on that, there is no reason to sell Dow Ag, none. If the goal is truly to turn Dow into a stable earnings growth company, the Dow Ag must be an integral part of the finished product. Further, when one considers the current market we are in, selling an asset like Dow Ag into it is not going to garnish full value for the seller. If the unit must be even partially sold, doing it a year from now when we are further into the recovery would reap far more value for shareholders.
Now, this still may just be taking bids to see if an “offer we can’t refuse” is submitted or to garner concrete value for a partial IPO. Still, when perhaps the most valuable part of a company is even being mentioned in a sale process, investors are wise to keep close tabs on it.
Disclosure (“none” means no position):Long DOW ,none
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Thursday’s Links Bogle-palooza
All Bogle..note to Mornigstar, make your vid embeddable. Charging $8500 to put the on a blog is insane….has anyone actually ever bought one? Wider distribution will get you more readers, free embeds would do just that..
– How to keep your portfolio on track
– Bogle addresses the notion that “buy and hold” is dead
– What the business of investing is all about
– “This is the worst bear market I have ever seen”
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New Addition
The Sullivan clan added a 4th child Wed. am. Posting to be limited this week.
Thank You
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Wednesday’s Links
Google, Breastfeeding, Berkowitz, Berkowitz
– Logging twitter feeds……this I think bigger news than people are making it out to be for those of us on Twitter
– Breastfeeding & kids. FTR, I am pro-breasts
– Berkowitz and AmeriCredit
– Berkowitz and his Florida land deal
Disclosure (“none” means no position):