Would still not be a buyer of Berkshire (BRK.A) here, i think it may go lower. That being said, the fear and sell off in the stock is ludicrous. Did Warren sell the put at the top of the market? Close…but it it does not matter. Listen to Tilson’s explanation.
Disclosure (“none” means no position):none
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Any guesses on when he stops buying? $$
After over a million shares last week, Gate’s on Monday added another 300k shares through his Foundation and Cascade Investments
Gates now has 19.057 million shares
Disclosure (“none” means no position):Long AN
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One of the hedge fund world’s most successful managers talks and is now finally bullish on stocks.
Reader Justin submits: Why Sears (SHLD) is NOT going bankrupt?
In this volatile market, anyone can say anything to put downward pressure on a stock. In many cases deserved, in some cases absurd, and in the case of Sears a little of both.
Let’s start with the deserved part. Obviously, retail is doing terrible this year as an investment. However, the woes at Sears go beyond the macro environment. They have made bad decisions in some cases, suffered from management turnover, and communicated very little beyond what’s required by a public company. On top of that, they recently lost a well-respected, activist shareholder, Bill Ackman. Bill has taken an absolute beating on his investments in Sears, Target, and Borders, so he may have had about all the fun he can handle in retail. In short, it hasn’t been all that pretty, but the shares reflect much worse.
The absurd is the idea that Sears has some kind of solvency risk as some have floated. Why is this absurd? Here’s my case:
1. Last quarter Sears generated FCF (free cash flow) of over $400 million. Target, a “good” retailer actually had no FCF last quarter, they burned over $900million. In fact, Target hasn’t generated FCF in the last 3 quarters. Over the same time frame Sears generated a staggering $1.5 BILLION in FCF. So yes Sears is making money hand over fist in this environment even with mediocre execution.
2. Eddie Lampert’s investment fund ESL owns over 50% of Sears. And Sears makes up over ½ his fund. And his fund is still making investments in other equities. Now if you are thinking that ½ your fund may evaporate into insolvency or you are worried about investor redemptions then you preserve cash if not generate cash by selling positions. What you don’t do is make more investments, which is what he’s doing.
3. Sears announced the purchase of additional shares of Sears Canada in November. Why spend your cash on buybacks and now additional shares in Sears Canada if you are worried about your cash position?
4. I’ve been to several Sears and Kmarts in recent weeks and they are all hiring.
In conclusion, Sears is hiring people, buying shares in, generating FCF, and ESL continues to make investments. None of these indicate to me that there’s any solvency concern by the controlling shareholder.
Disclosure (“none” means no position):Justin is long SHLD
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Home, Geithner, Geithner, Buffett,
– More folks eating here than ever before
– Not everyone likes the choice
–
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This is over a million shares in a week. $$
After buying almost half a million shares last, Gates disclosed he added another added another 510K shares Friday through his foundation and Cascade Investments
The two entities now hold 18.757 million shares or 10.6% of the total.
Disclosure (“none” means no position):Long AN
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Have not had a chance to go through the numbers yet and want to wait until the conference call tomorrow but here is the news and some initial thoughts…
Borders Group, Inc. (NYSE: BGP) today reported results for the third quarter, ended Nov. 1, 2008. On an operating basis, the consolidated loss from continuing operations for the third quarter was essentially flat with the same period a year ago at $39.0 million or $0.64 per share, compared to $38.4 million or $0.65 per share in the third quarter of 2007. On a GAAP basis, the company reported a consolidated third quarter loss from continuing operations of $172.2 million or $2.85 per share compared to a year ago when it recorded a GAAP loss of $40.0 million or $0.68 per share from continuing operations. The GAAP basis loss includes non-cash, non-operating charges totaling $133.2 million in the third quarter, consisting primarily of deferred tax and fixed asset impairments. Comparable store sales for Borders superstores decreased by 12.8% in the third quarter, and with music excluded, declined by 10.6%. Same-store sales at Waldenbooks decreased by 7.7% for the period.
“Borders has successfully reduced debt, improved operating cash flow, lowered expenses, improved gross margin-excluding occupancy-and improved inventory productivity during a time of extreme economic challenge,” said Borders Group Chief Executive Officer George Jones. “We stated at the beginning of this year that strengthening our balance sheet is our top priority and we are delivering results. We’ll remain keenly focused on these critical initiatives, and in addition, will increase our efforts to drive further gross margin improvement. All of the changes we are making will position Borders Group to compete more effectively.”
Debt, including the prior-year debt of discontinued operations, was reduced from a year ago by 34.2% or $273.1 million at the end of the third quarter to $525.4 million. This compares to debt of $798.5 million at the end of the third quarter last year. The debt reduction year-over-year was driven primarily by improved management of inventory, lower capital expenditures and proceeds from the previously announced sale of the company’s Australia/New Zealand/Singapore businesses, which took place in the second quarter of this year.
Operating cash flow from continuing operations improved by $110.0 million, as the company recorded fiscal year-to-date cash flow of $9.4 million compared to cash use of $100.6 million for the same period in 2007. Borders Group reduced inventory by $304.2 million at cost-or 19.5%-at the end of the third quarter compared to the end of the third quarter a year ago.
Management is now on-track to reduce fiscal 2009 operating expenses by $140 million compared to its previous target of $120 million. As a result, the company expects to save $70 million this year versus its original $60 million target for 2008. Beyond these operating expense improvements, the company believes there is additional opportunity to improve its realized gross margin through a more effective use of promotions and discounts. Early initiatives enabled the company to generate gross margin rate improvement-excluding occupancy-of 30 basis points in the third quarter and the company believes there is substantial room for further improvement.
Strategic Alternatives Update
Management provided an update to its previously disclosed strategic alternatives process, which included the exploration of a wide range of options, among them the sale of the company and/or certain divisions, including Paperchase Products Ltd. With respect to the sale of the company, management is no longer contemplating a transaction. Regarding Paperchase, as previously disclosed, Borders Group retains its right to exercise its “put” option to sell its Paperchase business to Pershing Square Capital Management for $65 million and is also in discussions with Pershing Square regarding an alternative financing transaction. No assurance can be given as to whether an alternative financing transaction will be entered into or consummated.
Additional Consolidated Q3 Results
All earnings and loss figures presented throughout this news release are provided on a continuing operations basis, unless otherwise noted.
Borders Group achieved third quarter consolidated sales of $682.1 million, a decrease of 10.0% over 2007. Consolidated gross margin as a percent of sales on an operating basis decreased by 1.4% from 22.2% to 20.8% in the third quarter as the negative impact of de-leveraging occupancy costs more than offset the gross margin benefit of a favorable sales mix and lower shrink. Excluding occupancy, third-quarter consolidated gross margin increased by 30 basis points compared to the prior year. On a GAAP basis consolidated gross margin as a percent of sales decreased by 0.6% from 22.1% to 21.5% in the third quarter.
On an operating basis, SG&A as a percent of sales in the third quarter decreased 0.1% from 28.7% in the same period last year to 28.6% resulting from de-leveraging caused by negative sales trends that were offset by the benefit of expense reductions. The expense reduction initiatives helped reduce SG&A dollar expenses by $22.3 million in the third quarter compared to the prior year. On a GAAP basis SG&A as a percentage of sales increased 1.3% from 28.7% to 30.0%.
Non-Operating Adjustments
GAAP consolidated net loss and loss per share figures reported in this release include the impact of non-operating adjustments, which in the third quarter totaled a net after-tax charge of $133.2 million. The net after-tax charge is comprised of deferred tax asset impairments of $107.0 million, store asset impairments of $31.1 million, as well as other items totaling $12.6 million, including severance costs, store closure and relocation costs, professional fees related to the strategic alternatives process, an adjustment to the U.K. lease guarantee liability and amortization of debt issuance costs. These costs were offset by income related to the fair market value adjustment of the warrant liability and a related tax benefit of $12.7 million as well as income received from a landlord lease termination of $4.8 million after tax.
Domestic Borders Superstores
Total third quarter sales at domestic Borders superstores were $548.4 million, a decrease of 10.9% over the same period in 2007. As stated, comparable store sales decreased by 12.8% for the period compared to last year, a result significantly impacted by a steep decline in customer traffic that was most pronounced in the months of September and October. Excluding the music category, same-store sales declined by 10.6% for the third quarter compared to one year ago.
Sales through Borders.com in the third quarter totaled $11.9 million, which is below management expectations due to the challenging sales environment. As a result, Borders Group does not expect Borders.com to break even this year as previously stated.
On an operating basis, Borders superstores reported an operating loss of $37.8 million in the third quarter compared to an operating loss of $30.8 million in the same period a year ago. The loss resulted primarily from negative same-store sales, which were partially offset by expense reductions. On a GAAP basis, Borders superstores reported an operating loss of $80.3 million in the third quarter compared to an operating loss of $31.9 million in the same period a year ago.
The company opened two new Borders superstores in the U.S. during the period and ended the third quarter with a total of 519 domestic superstore locations.
Waldenbooks Specialty Retail
Comparable store sales decreased within the Waldenbooks Specialty Retail segment by 7.7% in the third quarter. Total sales in the segment were down by 16.6% in the third quarter to $91.5 million, as the number of stores was reduced from 521 at the close of the third quarter 2007 to 467 at the end of the third quarter this year.
Company expense reduction initiatives and better gross margin performance drove an improvement in the third quarter operating loss for the Waldenbooks Specialty Retail segment. On an operating basis, the operating loss was $13.2 million in the third quarter this year compared to $19.4 million in the third quarter last year. On a GAAP basis, the operating loss for the Waldenbooks Specialty Retail segment was $17.7 million in the third quarter this year compared to $20.5 million in the third quarter last year.
International
In the third quarter, sales within the International segment (which consists primarily of Paperchase) totaled $30.3 million, which is down 6.2% compared to the same period a year ago. Excluding the impact of foreign currency translation, sales would have increased by 2.7%. On an operating basis, the segment generated an operating loss of $1.6 million in the third quarter this year compared to operating income of $1.8 million in the third quarter last year. On a GAAP basis, the segment generated an operating loss of $1.8 million in the third quarter this year compared to operating income of $1.8 million in the third quarter last year.
Next Financial Release
Borders Group plans to issue holiday sales results in mid-January. Fourth quarter 2008 results will be issued March 19 after market close with a conference call for investors the following day, March 20, at 8 a.m.
So, where are we? First and foremost the #1 problem at Borders is its debt. That, is falling and has been steadily since the beginning of the year. Second was cash flow / expenses and those are also going in the right direction. Cash flow is up and Borders will exceed it stated cost saving by 17%.
One has to remember that these results are in the face of a dismal operating environment for all retailers. The really good news is that in spite of it all, they are still making progress on their goals. As a shareholder, if the macro environment is lousy one cannot expect management to pull a rabbit out of their hat but as long as they continue to progress on the stated path, progress is being made.
Two things stick out. Borders.com results fell below expectations and the mentioned “financing transaction” with Pershing. Both need to be listened to on the conference call tomorrow am. Off the top of my head Borders can put Paperchase to Pershing for $65 million but owes Ackman $45 million from the earlier in the year loan. Just guessing but I think they want to put Paperchase to Pershing and extend the repayment of the loan…just a guess.
More after the call tomorrow…
Disclosure (“none” means no position):Long BGP
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Rogers is entertaining like him or not. I think hew does make some god point and do agree that the current TARP plans were not the best thing to so. I think Rogers has now completed the circuit …no?
Part 1:
Part: 2
Best line, “central banks have become asylums for economists that have gone insane”. Second…..”the global economy is imploding”.
This is a nice, long interview with Rogers..the best one I have seen yet..
Disclosure (“none” means no position):
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Now, is it just a coincidence with the Target (TGT) situation? Ackman now has a 12.5% total interest in General Growth Properties (GGP).
From the SEC Filing:
Item 5. Interest in Securities of the Issuer
(a), (b) Based upon the Issuer’s quarterly report on 9/30/08 10-Q, 268,314,510 Common Shares were outstanding as of November 10, 2008. Based on the foregoing, the Subject Shares represented approximately 7.5% of the Common Shares issued and outstanding as of such date.
Pershing Square, as the investment adviser to the Pershing Square Funds, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares. As the general partner of Pershing Square, PS Management may be deemed to have the shared power to vote or to direct the vote of (and the shared power to dispose of or direct the disposition of) the Subject Shares. As the general partner of Pershing Square, L.P. and Pershing Square II, L.P., Pershing Square GP may be deemed to have the shared power to vote or to direct the vote of (and the shared power to dispose or direct the disposition of) the Common Shares held for the benefit of Pershing Square, L.P. and Pershing Square II, L.P. By virtue of William A. Ackman’s position as managing member of each of PS Management and Pershing Square GP, William A. Ackman may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the Subject Shares and, therefore, William A. Ackman may be deemed to be the beneficial owner of the Subject Shares for purposes of this Schedule 13D.
(c) Exhibit 99.2, which is incorporated by reference into this Item 5(c) as if restated in full herein, describes all of the transactions in Common Shares and Swaps that were effected during the past sixty days by the Reporting Persons for the benefit of the Pershing Square Funds.
(d) No other person is known to the Reporting Persons to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Common Shares covered by this Schedule 13D, except that dividends from, and proceeds from the sale of, the Common Shares held by the accounts managed by Pershing Square may be delivered to such accounts.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
The Subject Shares are beneficially owned by the Reporting Persons. Furthermore, the Reporting Persons entered into Swaps for the benefit of Pershing Square, L.P. (the “PSLP Swaps”), Pershing Square II, L.P. (the “PSII Swaps”) and Pershing Square International, Ltd (the “PSIL Swaps”, collectively with the PSLP Swaps and PSII Swaps, the “Pershing Square Swaps”) on the dates described on Exhibit 99.2. The Pershing Square Swaps constitute economic exposure to approximately 12.5% notional outstanding Common Shares in the aggregate, have reference prices ranging from $0.49 to $0.70 and expire on the dates described on Exhibit 99.1.
Under the terms of the Pershing Square Swaps (i) the applicable Pershing Square Fund will be obligated to pay to the counterparty any negative price performance of the notional number of Common Shares subject to the applicable Pershing Square Swap as of the expiration date of such Swap, plus interest at the rates set forth in the applicable contracts, and (ii) the counterparty will be obligated to pay to the applicable Pershing Square Fund any positive price performance of the notional number of Common Shares subject to the applicable Pershing Square Swap as of the expiration date of the Swaps. With regard to certain of the Pershing Square Swaps, any dividends received by the counterparty on such notional Common Shares will be paid to the applicable Pershing Square Fund during the term of the Swap. With regard to the balance of the Pershing Square Swaps, any dividends received by the counterparty on such notional Common Shares during the term of the Swaps will be paid to the applicable Pershing Square Fund at maturity. All balances will be cash settled at the expiration date of the Swaps. The Pershing Square Funds’ third party counterparties for the Pershing Square Swaps include entities related to Citibank, Morgan Stanley and UBS.
The Pershing Square Swaps do not give the Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Issuer and do not require the counterparty thereto to acquire, hold, vote or dispose of any securities of the Issuer. Accordingly, the Reporting Persons disclaim any beneficial ownership of any Common Shares that may be referenced in such contracts or Common Shares or other securities or financial instruments that may be held from time to time by any counterparty to the contracts.
In addition to the agreements referenced above, the Reporting Persons from time to time, may enter into and dispose of additional cash-settled total return swaps or other similar derivative transactions with one or more counterparties that are based upon the value of Common Shares, which transactions could be significant in amount. The profit, loss and/or return on such additional contracts may be wholly or partially dependent on the market value of the Common Shares, relative value of the Common Shares in comparison to one or more other financial instruments, indexes or securities, a basket or group of securities in which the Common Shares may be included or a combination of any of the foregoing.
Now, General Growth Properties recently expressed doubts it could keep operating due to looming near-term debt.
The Chicago-based retail property company has $1.13 billion in debt coming due, including $900 million in secured mortgage debt due November 28 on two of its Las Vegas shopping centers and $58 million of corporate debt on December 1, the company said in a Securities and Exchange Commission filing.
It also faces another $3.07 billion due next year, according to the SEC filing.
“In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors,” the real estate investment trust said in the filing.
“Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern.”
Will Ackman provide some financing?
This is going to be good…..
If nothing else..the words Ford (F) or GM (GM) will not enter the vocabulary..
Disclosure (“none” means no position):None
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Of course they slipped in an SEC filing and did not actually say it out loud. There have been few companies that I have covered that have been either as clueless as to their business environment or dishonest about it with shareholders than Starbucks (SBUX) had over the past almost two years now.
Back in Feb. 2007 the CEO Jim Donald claimed that McDonalds (MCD) then new entry into premium coffee would be a benefit to Starbucks as McDonalds’ customers would then trade up to him. At the time I detailed to folly of this statement and said “I advise any potential new shareholders to avoid shares…”. Shares at $34
Less than a month later then retire founder and former CEO Howard Schultz penned a memo saying, without naming, that “competition has created awareness” of themselves, the company had “got away from its roots” and that it was affecting results.
In May 2007 with milk prices soaring and flimsy earnings out I detailed how dairy price would hurt them despite the fact management denied it would affect earnings and CEO Donald said “we do not consider the competition” when asked about McDonalds. Um….can’t really even add to that…Shares sit at $28
Only weeks later Starbucks switched from whole milk to 2% in all drinks for “customer service” reasons and at the time I said it was all about milk prices, then at decade highs..(2% is cheaper than whole)
Fast forward a month, Starbucks issues a profit warning and says “rising dairy costs are a challenge”…..duh..
Then came the announcement of the near $6 salad. At the time I commented that for a company that Schultz had lamented had “got way from its roots” in his famous memo, nothing they had done since then was a return to them.
Then just in case you weren’t convinced the ship wasn’t drifting listlessly, in late July facing declining stores traffic and an increasingly cash strapped consumer Starbucks did what???? Raised prices…
Less than a week later Starbucks admits increased prices leads to less store visits by customers….yet they maintain price levels…
Finally in September Starbucks admits “dairy prices will be a negative into 2008″…Shares now priced at $27
In Jan 2008 Schultz finally did what I begged him to do for almost a year a fired Donald
In Feb. 2008 they admitted what I hope anyone who has read the blog already knew, the coming year would be a poor one. Shares priced at $18
In March things got weird. Starbucks decided that they were going to start a social site so folks who loves the place can go online and talk about it…..more of Schultz “going back to the roots” of the company?
In May we find out the fired CEO Jim Donald cannot work “for the competition”….McDonalds..but, we thought they weren’t??
In July Starbucks started playing games with the earnings release to hide how bad results really were. Shares priced at $14
In August Schultz gave an interview in which he called the coffee at McDonalds and Dunkin Donuts “swill”, said he won’t “dilute the brand” by “going down the fast food road” and then does just that only days later with the “$2 after 2” promotion. Shares priced at $14
Current day. I have stopped following Starbucks as close as before because with the stock at $9 vs the $34 it was at when I told folks to run from it, I hope the story is clear for all to see. But, I could not let this one go by.
The filing to the Securities and Exchange Commission sheds light on how much of a threat new competition is to Starbucks, as McDonald’s Corp. and other restaurants add espresso drinks and more elaborate beverages. In the filing, Starbucks says that, in the U.S., “the continued focus by one or more large competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages at a low cost has attracted Starbucks customers and could, if the numbers become large enough, adversely affect the company’s sales and results of operations.”
Not bad…..it took 22 months for them to either recognize or admit it……
Just terrible…
Disclosure (“none” means no position):Long MCD, none
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Shot, Massachusetts, Newt, NYT vs WSJ
– Ok, this is helpful?
– Not sure if this is good or bad, more folks need to get laid off in order for it to work, right?
– Ok..this is the guy that balanced the budget…not Clinton….we ought to listen to him..
– This is really big news…surprised about how little play it is getting
Disclosure (“none” means no position):
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Gates continues to up his stake in the nation’s largest auto dealer. $$
Gates purchased another 244k shares for the Bill and Melinda Gates foundation, upping his stake in AutoNation (AN) to 8.5 million shares.
On the same day, Gates investment fund Cascade investments purchased 244k shares upping its stake to 9.66 million shares.
Gates now holds 10.3% of the outstanding shares
Disclosure (“none” means no position):Long AN
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