Bill Parcells had a great quote that has always stuck with me. He was asked about his team at the time that was 2-6 but had lost some close games whether or not he felt the team was better than its record. His reply, “You are what you are”. If you are 2-6 that is what you you are, nothing more and nothing less.
Here is a recent article on Sears Holdings (SHLD) that bares reading.
Why do I bring up Parcells? Well, his quote has a lot to do with current perceptions of Sears.
Sears, is currently a retailer that is struggling. It should be noted that this is not a current situation held by Sears only, retailers, expect Wal-Mart (WMT) and Target (TGT) all are. Now, Lampert is 100% correct when he says “We’re the $50 billion company that people think doesn’t have any customers or relevance,”.
That is true Sears is by no means anywhere near “in trouble”. Cash is great, debt is insignificant and the balance sheet is pristine for a retailer in the current environment.
All that, however does not comfort many shareholders who have watched the stock fall 50% in the past year. Again, a 50% drop is number held by scores of other retailers (JC Penny (JCP), Macy’s (M)for starters) but again, it is what is it, lousy.
Back to football…
Had you been a person who bet of football in 1995 and watched the Patriots that year (the year Parcells made the quote), you would have seen a team with a strong leader that made some mistakes that had caused it to lose some games it otherwise would have won. The team had a good young quarterback, strong defense ,capable receivers and a good kicker (not to mention great coaching). In short, all the ingredients where there for success. A misstep here and there caused poor results.
One could perhaps see the “value” in the team and recognized that a little tweaking could result in a dramatically different outcome the following year.
Had you gone to Vegas that off-season recognizing all this and bet the Patriots would have made the Playoffs and / or the Super Bowl the next year, the odds you would have gotten were wonderful. When they actually made both the following season, you would have laughed all the way to the bank
Parcells, recognizing the shortcomings in the team made some changes but stuck to his core philosophy that had worked in the past. The result? Success
Sears:
See the similarities? Lampert has acknowledged some mistake and is trying to take steps to correct them. A new CEO, new structure to maximize brand value and and new leader for those brands are in the works. What has not changed is the core strategy of patience and disciplined capital expenditures. That strategy has made early shareholders very wealthy even after the recent stock slide and is a proven long term one.
Those who think Sears is on the brink of extinction are like the football fans who have a 5-5 team and say they’ve “been lucky and should be 2-8”, well, they aren’t, they are 5-5. Conversely, the retail environment will not turn anytime soon so the same 5-5 team cannot be said “should be 7-3 because they have been unlucky” (in this case the “bad luck” is the economy), they are 5-5.
What one can do is look forward and see a very smart leader, correcting errors, with a very strong core (balance sheet) and a proven track record. Based on that you could say the current situation is not reflective of the future results one should anticipate.
Hence, value investing in Sears………
Disclosure (“none” means no position):Long SHLD, WMT, none
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