Taleb is is usual self, sorry. One does have to wonder though. Taleb used to stay away from specific predictions preferring to talk in generalities. He now regularly offers predictions on smaller and smaller time frames. Perhaps he is falling prey to some of the mistake paradigms in his books?
Could it be time? They have sure sold off unlike anytime before. The recent sell-off is worse than the 1970-1980 one.$$
Check out the following chart:
Trend line not only has been broken, it has been demolished to the downside.
What to do? Here is the class of the group, (VNO) Vornado, )JOE) St Joe, (FUR) Winthrop REIT and (BAM) Brookfield Asset Management.
Brookfield Asset Management Inc.(NYSE:BAM) announced last month its results for the third quarter ended September 30, 2008.
Cash Flow From Operations:
Cash flow from operations for the third quarter totalled $355 million ($0.58 per share). Operating cash flow in the same quarter in 2007 was $255 million ($0.40 per share) on a comparable basis, which excludes a security disposition gain of $66 million, or $321 million ($0.52 per share) including the gain. On a comparable basis, operating cash flow per share increased by 45% quarter-over-quarter due to improved water levels and pricing in the company’s renewable power business and an increased contribution from our commercial office business.
Brookfield is diversified with holding in office building and hydro electric plants.
The St. Joe Company (JOE) is a real estate development company. The majority of its land is located in Northwest Florida. The Company owns approximately 700,000 acres, approximately 310,000 acres of which are within 10 miles of the coast of the Gulf of Mexico. It is engaged in town and resort development, commercial and industrial development, and rural land sales. The Company also has interests in timber. The Company operates through four operating segments: residential real estate, commercial real estate, rural land sales and forestry. Residential real estate segment develops large-scale, mixed-use resort, seasonal and primary residential communities. The commercial real estate segment develops and sells real estate for commercial purposes. The rural land sales segment markets and sells rural land from its holdings in Northwest Florida. The Forestry segment focuses on the management and harvesting of the Company’s timberland holdings
The key on St. Joe? It is virtually debt free and has a decent cash position (over 2 to 1 cash to debt)
Vornado Realty Trust is an integrated real estate investment trust (REIT) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the Operating Partnership). Vornado is the sole general partner of, and owned approximately 90.1% of the common limited partnership interest in, the Operating Partnership at December 31, 2007. The Company’s operating segments include New York Office Properties, Washington, DC Office Properties, Retail Properties, Merchandise Mart Properties, Temperature Controlled Logistics Properties and Toys “R” Us (Toys). During the year ended December 31, 2007, the Company owned directly or indirectly, all or portions of 28 office properties aggregating approximately 16 million square feet in the New York City metropolitan area (primarily Manhattan), all or portions of 83 office properties in the Washington, DC and Northern Virginia areas.
NET INCOME applicable to common shares for the quarter ended September 30, 2008 was $31.4 million, or $0.20 per diluted share, versus $116.5 million, or $0.74 per diluted share, for the quarter ended September 30, 2007. Net income for the quarters ended September 30, 2008 and 2007 include $1.3 million and $31.9 million, respectively, for our share of net gains on sale of real estate. Net income for the quarters ended September 30, 2008 and 2007 also include certain items that affect comparability which are listed in the table below. The aggregate of these items and net gains on sale of real estate, net of minority interest, decreased net income applicable to common shares by $31.2 million, or $0.20 per diluted share for the quarter ended September 30, 2008 and increased net income applicable to common shares by $54.5 million, or $0.33 per diluted share for the quarter ended September 30, 2007.
Winthrop Realty Trust, formerly First Union Real Estate Equity and Mortgage Investments, is a real estate investment trust (REIT). The Trust is engaged in the business of owning real property and real estate related assets, which it categorizes into three specific areas: ownership of operating properties, which the Company refers to as operating properties; origination and acquisition of loans and debt securities secured directly or indirectly by commercial and multi-family real property, including collateral mortgage-backed securities and collateral debt obligation securities, which it refers to as loan assets and loan securities, and ownership of equity interests in other REITs, which it refers to as REIT equity interests. It acquires assets through direct ownership, as well as through entering into specific strategic alliances and joint ventures. In March 2008, Winthrop Realty Trust announced that it had sold all of its interest in Lexington Realty Trust.
For the first nine months of 2008, EPS is a loss of $.21 vs a $.36 profit in 2007.
As one looks through the results, the business of being a landlord is still profitable. Rent income is stable. Reduction in results is due to write-downs of investment portfolios and increased reserves required from banks. BAM and VNO are still solidly profitable and would be the pick of the litter.
The group is clearly oversold. The question is, when does the oversold situation reverse itself? That, is a huge question. Sorry, do not have the answer. But in this case, with BAM and VNO, you can get profitable companies selling selling at discount to their earnings power yielding 4% and 7% respectively. All are bouncing around at their low’s.
It may be time to take a closer look at the sector, only the top of it though
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Did well with this trade over the last year and I think it may be time to get back in…$$
For those who remember in Feb 2007 we bought Oil (USO) when the price of crude was $47 and rode it until we sold this May at $127 (it later peaked at $147).
With the price back to where it all began last year, I think I am inclined to start buying again.
First, watch Paul Kedrosky on CNBC yesterday.
Personally I think Paul may be a bit conservative in both the price level and the time it may take.
Why?
First, I came across this on Twitter yesterday:
My rough estimate says that at any given time in recent years about 600 to 700 million barrels of crude oil are at sea, enroute from exporters to consuming countries.
As a shipowner, about the only cost I have much control over is my fuel cost. Financing and insurance costs are a function of time–so much per month or year. Maintenance is also mostly a function of time, but it might be defered during economic downturns. Crew costs are also a function of time–so much per month, or per shift.
Fuel burned is a function of speed–the drag goes up as a function of the speed–roughly at the square of the speed–double the speed equals more than double the fuel, but half of all the other costs. So at any time, there is an optimum speed–the higher the cost of fuel, the slower to steam to optimize profits. The lower the fuel cost, the faster you show go, up to the limit posed by higher drag on the ship’s hull.
We have just had the biggest drop in bunker fuel prices ever experienced, so every good charter captain just started steaming faster–anything else would be to leave profits on the table. How much faster? If 25%, then the amount of crude at sea would have dropped by 100 to 150 million barrels over the past 2-3 months, or about 1.5 to 2 million barrels per day. This destocking at sea would make it look like we have a worldwide oversupply of that amount. By the way, this same factor of ship-speed also explains the weakness in the BDI.
It also says that once oil prices(bunker fuel) starts back up, then that 2 million b/d will dissappear from the markets as the steaming speed slows back down. I happen to think the destocking at sea is about to end, and that, together with the winter seasonal increase and OPEC cuts may remove some 6 million b/d from markets between now and February, and that is why Land-Lubber just might be right in his call for $150 crude by 2-29-2009. Just my 2 cents for discussion. I can sure tell you as a pilot I adjust airspeed to reflect fuel costs, and so do all the airlines.
Now disclaimer: Who knows if the person is really a pilot. But, based on what I could find, the number proposed are fairly accurate as the the #’s at sea and inventory levels.
Second: The dollar.
It reached record low levels this summer (when the price of oil peaked). Its subsequent rise (20%) has inversely correlated to oil’s slide (that and demand destruction for oil) of 68%. Here is the rub. The dollar has to come down. The Fed and Treasury are printing money like they think there is no tomorrow and unfortunately, there is. That future will have a falling dollar and which will be default cause oil prices to rise. It will cost more weaker dollars to import anything and oil is imported.
Third. Oil Demand.
Yes we are in a recession. Yes we will come out of it. No there is no tangible extra supply going back on the market. That means when demand begins to increase and the dollar inevitably falls in value, we are due for another super spike in oil. I just do not see anyway around it. We really have not done anything to address drilling or conservation here in the US which would add supply. Even adding natural gas supply would lower its price and cause million of Northeast homes that use oil to heat to convert to gas like they were this summer. With oil prices now low, those conversions, according to several heating companies in my area have stopped.
When?
Hell if I know. My guess is no longer than spring before it starts if we have a cold winter. The time to buy would be now before the winter hits.
I used (USO) before for the trade but I think this time I am going with OIL (OIL) as the correlation to price seems more true. I would also consider the (DXO), it is a double long index. Currently at $3 and change, the down side is limited and upside is substantial.
Thoughts on a better index?
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Thank you, Meet the Press, Burress, Rubin, Rubin
– Thank you for the mention
– From Russert to Gregory…….talk about lowering the bar…
– Should be in jail…too stupid to be free
– Yes or No?
– About time
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Lampert and Gates now hold nearly 58% of the outstanding shares.$$
Once again through both Cascade Investments and his Foundation Gates added another 375k shares at $8.30 each.
Gates now holds over 12% of the outstanding shares. I’ll update tomorrow after the next buy…
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Here is a chart of four stocks…..I’ll bet a whole lot the results will surprise you..
First, here is the cart:
Surprised? Would anyone have bet shareholders of Google (GOOG), Research in Motion (RIMM) and Apple (AAPL) are essentially in the same boat in the past year as shareholders of Sears Holdings (SHLD)? Or, based on the love affair or lack thereof with their products, is our outlook of the various stocks skewed?
One is a struggling retailer about the kick short sellers in the face and the others are tech companies that sell products we all love. The problem with them is the same old story. Investors bought shares of them at 30-50 times earnings (or higher) assuming the explosive growth they were experiencing would go on forever. The growth subsided, shares plummeted and investor got squashed.
Are they cheap now? One could argue they are reasonable although the same person might wonder how many $200-$400 phones people may buy in a recession or how much money companies are going to put into advertising in one. If they won’t, prices could fall further. I don’t know either way but I do know I would feel more comfortable owning then at 12-17 times earnings they trade at now than the ridiculous levels earlier this year.
Do people love their products still? Yes. Are they still very profitable? Yes. Is overpaying for unsustainable growth a recipe for losses? Yes.
Disclosure (“none” means no position):Long SHLD, none
Visit the ValuePlays Bookstore for Great Investing Books
This is what Dow Chemical (DOW) is going to turn into in just a few months…
The key here is that it will go from 51% of revenues to 69% of revenues from specialty chemicals. That and K-Dow, the new JV, will be an instant leader in its field.
Slap a 9% yield on it while you wait and you’ve got a real winner down the road.
Disclosure (“none” means no position):Long Long Dow
Visit the ValuePlays Bookstore for Great Investing Books
This is a great book and its timing is perfect…..
Steve Moore and Arthur Laffer take the reader on an easy to follow explanation of supply side economics and its results. Readers get a modern day history of taxes and their effect on the economy. What this is not is an politically biased book. For instance:
– The authors heap praise on Democrat John F. Kennedy for his huge tax cuts in office and for the effect they had for the remainder of the 1960’s. They quote Kennedy:
“Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other…..It is between two kinds of deficits- a chronic deficit of inertia, as the unwanted results of inadequate revenues and a restricted economy- or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, produce revenues, and achieve a budget surplus. The first type of deficit is a sign of waste and weakness- the second reflect an investment in the future.”
– They make no bones at all pointing out the various failure of the Nixon, Ford and Carter administrations. For those keeping score those are two Republican and one Democrat. Those chapter are actually very interesting because those listening to the news today are hearing some of the same ideas being bantered about. Guys, it was a bad movie the first time, we do not need to see it again. If you get the book (you should), pay close attention to these chapters.
– Regan receives deserved praise for the tax cuts of the early 1980’s that created the near 20 year bull market in both stocks and the economy.
– After pointing out the mistakes of his first two years in office, the authors give Democrat Bill Clinton credit for reducing taxes in 1995 and the resulting economic surge from it.
The authors also give Clinton credit for welfare reform. In 1995 the Cato Institute did a study that showed a welfare recipient would need to make $12 to $15 an hour to replace the aid they received . In 1994, the New York Post ran a similar study that said a NYC worker would have t make $5k a year to replace all the welfare benefits. Worse, was the income offset of the program. Should a welfare recipient find a job, there was a near 100% offset in benefits, in essence a 100% income tax.. Why work if that income was going straight to the government? The news system, with its work requirement caused the number of families receiving welfare to drop from near 5 million to under 3 million in a decade.
– They do take a grim view of Obama simply because the book was finished earlier in the year. Obama seems to have come off some of his earlier statements and the authors do acknowledge that candidates say what they have to to get elected and may perform differently in office. In other words, the jury is out until results are in.
For statistical junkies there is plenty on the book to sink your teeth into. The authors show how the states with the lowest income tax rates are also the states with the most robustly growing economies. Detailed is how high tax rates in California have lead to a “millionaire exodus” from the state, crippling its budget. Where did they go? Nevada and New Mexico, states that offer far lower tax rates.
On a global scale, the authors illustrate how corporate tax rates are plummeting around the globe as nations compete for business and investment capital. Said the Prime Minister of Scotland, “Supply side economics works, we’ve seen that in Ireland. Their low rates are attracting all capital of Europe and if we want to compete our rates need to fall near theirs”. How much capital? Over 1,000 companies have moved into Ireland during the 1990’s. Ireland enjoyed budget surpluses and saw the hourly manufacturing wage grow 126%, unemployment fell from 18% to 5%, for the first time since the potato famine Ireland is seeing an annual influx of educated workers and on a per capita basis, the Irish are over twice as rich as they were in the 1980’s.
It is so good in Ireland that EU bureaucrats are complaining that the Irish are “tax poaching” to attract capital and business….so tax rates do matter?
15% flat taxes around the globe are being hailed as the reason for explosive growth in formerly stagnant nations like Ireland, Russia, Hong Kong and others. It also points out the US now has the second highest corporate tax rate in the world. They illustrate that the US is not, despite it highly qualified work force the prime place for manufacturing jobs due to it high corporate tax rate. We are not talking about jobs that build Barbie Dolls, we are talking about skilled manufacturing jobs in computers and semi-conductors and the like.
Supply side economics is not about eliminating taxes. Clearly they are needed for the gov’t to function. What it is about is finding a tax rate that does not punish entrepreneurial behavior and success and promotes income avoidance. The lower the penalty on the next dollar you make or save, the more of them you will strive for. It have been proven time and time again the government in that case always ends up making more money. Why? Because we all do…
Here is the book…please read it
Peanuts, Blogs, Gas, OPEC
– GMO peanuts that will save lives…
– An immediate tax cut
– The Cartel that can’t agree
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Better get yours before they are all gone….$$
Again through Cascade Investments and his Foundation, Bill Gates added another 130k shares if AutoNation (AN).
He know holds 11.03 million and 9.957 million shares in each entity respectively. This brings his % of ownership to 11.9%.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Here is a neat video done “white board” style that explains margins calls and their effect on the market.
Margin calls and the financial market’s decline from Marketplace on Vimeo.
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
It is becoming clear there are two camps with Sears Holdings (SHLD), Lampert is a smart, Lampert is a idiot. The beauty of what is happening is that one camp will eventually be proven correct. There will no middle of the road here. First the results.
Company Highlights
– Net loss for the quarter of $1.16 per diluted share ($0.90 per diluted share excluding certain one-time items) as compared to net income of $0.03 per diluted share in the third quarter of 2007
– Total sales of $10.7 billion in the third quarter of fiscal 2008, with a decline in domestic comparable store sales of 9.0% as compared to the third quarter of fiscal 2007
– Adjusted EBITDA of $148 million in the third quarter and $722 million through the first three quarters of 2008
– Managing in a difficult economic environment
– Reduced domestic inventory by $575 million as of third quarter of 2008
– Reduced domestic selling and administrative expenses by $129 million in the third quarter
– Closing select under-performing stores as part of our ongoing review
– Providing differentiated solutions for our customers, including our layaway program
– Maintained strong balance sheet and liquidity position, including a $4 billion revolving credit facility, which matures in March 2010, secured by approximately $10 billion of domestic inventory as of quarter end
– Increased share repurchase authorization of $500 million
HOFFMAN ESTATES, Ill., Dec. 2 /PRNewswire-FirstCall/ — Sears Holdings Corporation (“Holdings,” “we,” “us,” “our” or the “Company”) (Nasdaq: SHLD) today reported a net loss of $146 million, or $1.16 per diluted share compared with net income of $4 million, or $0.03 per diluted share, in the prior year. Our third quarter 2008 results include a charge of $101 million ($61 million after tax or $0.49 per diluted share) related to costs associated with the closure of 14 stores and asset impairments, of which $76 million ($46 million after tax or $0.37 per diluted share) relates to non-cash items. This charge was partially offset by mark-to-market gains on Sears Canada hedge transactions of $67 million ($29 million after tax and minority interest or $0.23 per diluted share). Excluding these items, the net loss per diluted share was $0.90 for the third quarter of fiscal 2008. The decline in our third quarter results from the same quarter last year primarily reflects lower operating results at both Sears Domestic and Kmart, partially offset by improved operating results at Sears Canada.
“We believe we have positioned ourselves well for a difficult holiday shopping season. We have reduced our inventory levels, cut expenses, and announced the closing of select underperforming stores as part of our ongoing review. We are offering differentiated solutions for our customers to help them meet their holiday needs, through programs like our successful layaway program at Kmart, which we have recently expanded to Sears, and our Heroes at Home Military Wish Registry, which enables Americans to help make the wishes of military members and their families come true,” said W. Bruce Johnson, Sears Holdings’ interim chief executive officer and president. “As a result of severe conditions in the economy, our EBITDA forecast mentioned in the August 28, 2008 press release is no longer relevant given its assumption of flat to modest comparable store sales declines in the third and fourth quarters.”
In addition to the 14 store closings noted above, we are closing eight additional underperforming stores. We expect to record a pre-tax charge of up to $21 million related to these closures in the fourth quarter of 2008. We expect that these store closings will be additive to earnings, given that the closure of these stores eliminates negative cash flows incurred from their operations, and will generate cash from the liquidation of inventory and from other proceeds. Mr. Johnson further noted, “Given the current economic and retail environment, we will carefully evaluate alternatives that provide financial flexibility in the near-term, while enhancing shareholder value in the long-term. These actions may include additional store closings or divestitures, remodels or repositioning of existing stores, acquisitions, and repurchases of our debt and common stock.”
Revenues and Comparable Store Sales
For the quarter, our total revenues declined approximately $0.9 billion to $10.7 billion in fiscal 2008, as compared to $11.6 billion for the third quarter of fiscal 2007. The decrease in revenue primarily reflects the impact of lower domestic comparable store sales.
For the quarter, Sears Domestic’s comparable store sales declined 10.6% while Kmart’s comparable store sales declined 7.0%. Total domestic comparable store sales declined 9.0%. The comparable store sales declines at Sears Domestic were more pronounced in the month of October as conditions in the general economy deteriorated further. Comparable store sales declined for the quarter across most major categories at both Kmart and Sears Domestic. Comparable store sales declines continue to be driven by categories directly impacted by housing market conditions (including home appliances at Sears Domestic), a slowdown in consumers’ discretionary spending (including home and household goods and apparel at both Sears Domestic and Kmart and lawn and garden at Sears Domestic), as well as a shift in our promotional strategy for food and consumables at Kmart and tools at Sears Domestic.
November 2008 Comparable Store Sales
Our domestic comparable store sales declined 8.7% during the month of November 2008. This decline includes a decline in comparable store sales of 7.8% at Sears Domestic and 10.0% at Kmart. The month of November 2008 includes two days of the holiday shopping season compared to the month of November 2007 which included nine days due to a one-week shift in the Thanksgiving holiday.
The November Kmart comparable store sales also do not reflect sales made through our layaway program. Initial usage of the program has been encouraging, and these sales are not recognized until after merchandise is both paid for and picked up by customers using the program, which will be predominantly in December 2008.
Comparable store sales declines not attributed to the holiday shift are mainly the result of external economic factors discussed previously. November comparable store sales declines continue to be driven by categories directly impacted by a slowdown in consumers’ discretionary spending (including home and household goods at both Sears Domestic and Kmart and apparel and lawn and garden at Sears Domestic). Declines at Sears Domestic were partially offset by increases in home appliances.
Operating Income
For the third quarter 2008, we reported an operating loss of $202 million, as compared to operating income of $51 million in the third quarter of fiscal 2007. Our operating loss of $202 million was mainly due to the $101 million of above-noted charges, as well as lower gross margin generated at both Kmart and Sears Domestic. We generated $2.9 billion in total gross margin in the third quarter as compared to $3.2 billion in the third quarter last year. The above-noted $101 million charge included a charge to cost of goods sold of $10 million for inventory reserves recorded in connection with store closings. Our gross margin rate decreased by approximately 60 basis points to 26.8% and mainly reflects a rate decline of 150 basis points at Sears Domestic due to increased markdown activity. The decline at Sears Domestic was partially offset by increases of 40 basis points at both Kmart and Sears Canada. If the overall retail environment continues to be impacted by unfavorable economic factors, our sales and gross margin would likely continue to be pressured for the balance of fiscal 2008.
Declines in sales and gross margin were partially offset by a decline of $153 million in selling and administrative expenses for the quarter. The decline includes decreases in domestic expenses of $129 million as compared to the third quarter of fiscal 2007. Depreciation expense increased $71 million and includes a non-cash fixed asset impairment charge of $76 million.
Financial Position
We had cash and cash equivalents of $1.2 billion at November 1, 2008 (of which $502 million was domestic and $670 million was at Sears Canada) as compared to $1.5 billion at November 3, 2007 and $1.6 billion at February 2, 2008. The November 1, 2008 cash balance excludes $94 million on deposit with The Reserve Primary Fund, a money market fund which has temporarily suspended withdrawals while it liquidates its holdings to generate cash to distribute. As a result, we reclassified $94 million from cash to the prepaid expenses and other current assets line within our Condensed Consolidated Balance Sheet at November 1, 2008. We recorded a $3 million loss ($2 million after tax or $0.01 per diluted share) during the third quarter of 2008 in connection with our investment in The Reserve Primary Fund. Subsequently on November 21, 2008, we received notice from The Reserve Primary Fund that it expects to make an additional distribution on or about December 5, 2008 and we estimate our pro rata share to be approximately $54 million.
During the first three quarters of 2008, significant uses of cash included share repurchases of $558 million (as discussed further below), capital expenditures of $395 million, pension contributions of $204 million, net long-term debt repayments of $196 million and payments on commercial paper borrowings of $129 million. These amounts were offset by a $1.9 billion increase in short-term borrowings, primarily through borrowing on our $4 billion credit facility. Had $94 million of our short-term investment in The Reserve Primary Fund been available short-term borrowings would have increased by $1.8 billion.
Merchandise inventories at November 1, 2008 were $11.4 billion, as compared to $12.1 billion at November 3, 2007. Domestic inventory declined $575 million from $11.0 billion at November 3, 2007 to approximately $10.5 billion at November 1, 2008, reflecting the effectiveness of our efforts to control inventory levels. Sears Canada’s inventory levels decreased approximately $189 million from November 3, 2007 to $898 million at November 1, 2008. The decrease in Sears Canada’s inventory is primarily due to the change in exchange rates. As we expect difficult economic conditions to persist in the near term, we intend to tightly manage inventory levels with the goal of reducing domestic inventory levels below last year’s in the fourth quarter.
Resources and Liquidity
Holdings has significant assets, including cash of $1.2 billion, a large number of owned real estate properties, a stable of nationally recognized proprietary brands including Kenmore, Craftsman, Lands’ End and DieHard, our wholly-owned Lands’ End subsidiary and a 72% equity interest in Sears Canada. In addition, on a consolidated basis Holdings has $11.4 billion of inventory, or $7 billion of inventory net of $4.4 billion of accounts payable.
Since the merger of Kmart and Sears created Holdings in 2005, we have consistently generated cash flow from operations. In its first three years (from 2005 to 2007) Holdings generated $5.2 billion of operating cash, and we expect to generate significant cash from operations in fiscal 2008 as well. This strong cash flow has enabled us to reduce our obligations, as we have we paid down approximately $2 billion of the debt assumed in the merger and made contributions of approximately $1 billion to fund the frozen pension plans of our predecessor companies.
Holdings has consistently maintained a strong capital structure with excess liquidity even during the holiday peak. Our revolving credit facility, which matures in March of 2010, is used to issue standby letters of credit to support our insurance programs (currently approximately $1 billion outstanding) and to fund seasonal working capital needs (currently approximately $2 billion in borrowings outstanding excluding our standby letters of credit). As we reach our peak working capital need early in the fourth quarter, we expect to repay the entire $2 billion of borrowings in December (although we do expect to borrow on the revolver again in the month of January 2009). An affiliate of Lehman Brothers has a $207 million total commitment in the $4 billion revolving credit facility, but since September 17, 2008 has not funded its proportionate share of our borrowings under the facility.
Share Repurchase
The Company also announced today that its Board of Directors has approved the repurchase of up to an additional $500 million of the Company’s common shares. This authorization is in addition to the $72 million worth of shares that currently remain available for repurchase under the Company’s existing repurchase program. Share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods. Timing of repurchases is dependent on prevailing market conditions, alternative uses of capital and other factors.
Bruce Johnson commented, “After careful consideration and a review of the company’s valuation, prospects, cash flow and liquidity, we believe that our shares represent an attractive investment for our shareholders. Given the difficult retail environment and its effect on our free cash flow, we have reduced our rate of repurchases throughout 2008 as we worked to retain flexibility to pursue opportunities and address contingencies. With significant assets and cash flow, we believe Sears Holdings has the flexibility to continue to invest in our business, repay debt, and consider acquisitions opportunities as well.”
During the 13- and 39- week periods ended November 1, 2008, we repurchased 1.4 million and 7.4 million of our common shares at a total cost of $81 million and $558 million, respectively, under our share repurchase program. During the 4-week period from November 2, 2008 to November 29, 2008 the Company repurchased 1.2 million common shares at a total cost of $53 million. Since the third quarter of fiscal 2005, when our repurchase plan was first approved, we have repurchased approximately 41.4 million of our common shares at a total cost of $4.9 billion pursuant to the program. As of November 28, 2008, we had approximately 123.6 million common shares outstanding.
From the 10-Q also released this morning:
Credit Agreements:
– The Credit Agreement does not contain provisions that would restrict borrowings or letter of credit issuances based on material adverse changes or credit ratings.
– The majority of the letters of credit outstanding under the Credit Agreement are used to provide collateral for our insurance programs.
So, what to think. Poor results, as expected. Do not get too caught up with “analyst expectations” with Sears. They provide them no guidance so results tend to vary from estimates by 20% or more on a regular basis in either direction. It seems that Wall St. even agrees as the stock is up 12% today even though they “missed”.
I have to agree with Bruce Berkowitz. When he commented on the short interest in Sears, he said that “all Lampert has to do is keep buying back stock that will take care of that situation”. Agreed..
I also still believe that down the road something is up with AutoNation (AN), AutoZone (AZO) and Sears Auto. Too much cross ownership and Board representation for Lampert to have 50% or more of all three and for there to be nothing there.
Q4. Will it be lousy also? Yup. I doubt we’ll see a loss again but profits will be lower clearly than last year as they will be across the retail spectrum. What will be of interest in Q4 is how much of the $572 million Lampert has to buy back stock he uses. My guess is most of it. That, at today’s prices comes to about 17.4 million shares and will reduce the number outstanding to 106 million of which Lampert has 65 million.
Squeeze baby squeeze…
Disclosure (“none” means no position):Long SHLD, AN, none
Visit the ValuePlays Bookstore for Great Investing Books
Dow Chemical (DOW) is seeing declines in demand slowing. As precursor stock, that may mean the slowdown in the world economy may be near an end. $$
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Here is a good interview of Bill Fleckenstein. For those who are aware of who he is, he did predict the current situation. Worth the watch..
Twitter, Buffett, Nigeria, Curve
– The reason OPEC does not mater
– This is true
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
