After reporting on the “hot water” that Ron Johnson is in over at J.C. Penney (reported here), how’s billionaire Eddie Lampert doing at Sears Holdings Corporation (NASDAQ:SHLD)? Well, Lampert has confidence in himself; he recently added around 1.2 million shares for $55 million to his already robust Sears position. As well, Vadim Perelman’s hedge fund, Baker Street Capital, also bought up a sizable number of shares earlier this month — some 7.18 million shares for a 6.75% ownership stake in the retailer (check out Lampert’s portfolio).
Lampert is chairman of Sears Holdings Corporation (NASDAQ:SHLD), and together with his investment firm, ESL Investments, is the largest shareholder of the retailer. Lampert owns over 25 million shares and ESL some 36 million shares, together they control 56.5% of the company. Lampert focuses on the retail sector, with other investments in notable retailers Gap, AutoZone and Big Lots, but he has been struggling with Sears of late given the poor economic back drop (check out ESL’s newest picks). So is Sears worth investing in given Lampert has increased his stake? I remain hesitant and believe there are too many headwinds afoot, including notable competition.
Fellow fund manager Berkowitz believes
It appears that Lampert also has notable hedge fund manager Bruce Berkowitz as a backer. Berkowitz has previously discussed the value he believes that Sears Holdings Corporation (NASDAQ:SHLD)’s real estate holds (see all hedge funds owning Sears). Berkowtiz’s Fairholme Fund owns 18.1 million, or over 17% of the retailer. So why trust Berkowitz? Well he was was named “Stock Manager of the Decade” in 2009 and his Fairholme Fund has managed to to return 1.02% per month since September 2000.
Per Berkowitz’s case study of the company, he believes the real estate value alone is worth upwards of $115 per share, that’s 130% above where the stock is currently trading. He has also been sure to point out that Sears has more commercial square feet than Simon Property Group, Inc (NYSE:SPG), but Simon still manages to trade nearly ten times the market cap.
Other potential investor interest includes speculation that the commercial REIT, Vornado Realty Trust (NYSE:VNO), could be looking to trade its J.C. Penney shares it sold for a position in Sears (read more about the sale).
The Sears business
Sears Holdings Corporation (NASDAQ:SHLD)’s key segment, Sears Domestic, accounts for over 50% of Sears’ revenue. This includes its staple stores that are located in malls and average over 130,000 square feet. These stores offer a variety of products, from apparel to appliances. Kmart still generates some 35% of revenue, which is not good, as this business is seeing immense pressure from Wal-Mart Stores, Inc. (NYSE:WMT). Both segments continue to see weakness of late. Sears’ domestic comp sales were down by 1.4% for the whole year 2012, while Kmart’s comp store sales were 3.7% lower.
Target is expected to start cutting into Wal-Mart’s market share as it focuses more on consumable items should boost sales and earnings in a sluggish consumer environment. However, I think both Wal-Mart and Target Corporation (NYSE:TGT) will continue to dominate Sears Holdings Corporation (NASDAQ:SHLD).