Shareholders of Sears Holdings(SHLD) have been once again reminded that entropy is inexorably increasing, at least in their brokerage accounts. Less than a year ago they had only Sears, but since then, they have received in three separate transactions, Orchard Supply Hardware common (OSH) and preferred (OSHSP), warrants to buy Sears Hometown and Outlets (SHOS), [...]
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The next round of corporate action at Sears Holding (SHLD) is about to begin as the board of directors set today as the distribution date of the rights offerings to purchase shares of its Hometown & Outlet store spinoff. The new company is expected to trade under the ticker ‘SHOS’ and each SHLD shareholder will receive one rights [...]
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Walgreens(WAG) announced today that it has reached an agreement to acquire prescription files and inventory from 33 Kmart pharmacies in 16 states from Sears Holdings(SHLD). A quick look at the locations reveals that these are the Kmart locations scheduled to be closed in the next few months. The first transition already happened 3 days ago, though Sears has not commented nor were any terms disclosed. Sears hopes to raise $170 million by liquidating inventory at these stores.
Disclosure: The author holds no position in any stock mentioned.
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We have written previously about Sears(SHLD) closing dozens of stores. Now, the Huffington Post reports on
Now, at least four of the places affected — Jackson, Miss., Cleveland, Tenn., New Smyrna Beach, Fla., and Harper Woods, Mich. — are fighting the company’s decision. Local governments, afraid of the economic impact of the closures, are appealing to Sears Holdings with petitions, rallies and even tax incentives, so far to no avail.
“We would like for a major store to remain in the Jackson area,” pleaded Mary Garner on the online petition started by Jackson Mayor Harvey Johnson Jr. “Please do not desert us.” The petition had 3,251 signatures as of Wednesday afternoon.
We’d be surprised if the company changes its decision. The stores being closed have long histories of being unprofitable, and it’s unlikely that community response can be strong enough or sustained enough to reverse that, particularly given the level of investment Sears would have to put into the stores. The company said as much in an email to the Huffington Post
“We appreciate the community support and in fact have seen an increase in traffic to these stores since the petitions have started,” Tom Aiello, a Sears spokesperson, wrote in an email. “Unfortunately these stores have lost money for several years and Sears Holdings, as a company, cannot continue to support underperforming stores.”
There was a time when having a Sears put a town on the map. That time is long past, and the sooner these cities and towns move their focus from the past to things that can drive their future prosperity, the faster they will be able to make meaningful progress with their economic development.
Disclosure: The author holds no position in any stock mentioned
The post When Sears Is All You Have- Small Towns Plead In Vain For Sears To Stay appeared first on Inelegant Investor.
The Mercury News interviewed Marc Baker, CEO of Orchard Supply Hardware(OSH), which was recently spun off
from Sears Holdings(SHLD). There’s nothing really new here, but it’s always interesting to see how a CEO views and spins his company. Some highlights:
Q Where does Orchard fall in terms of the hardware store landscape?
A We think of ourselves as a big small box rather than a small big box. The distinction is we don’t carry all the (lumber, dry wall and other commodity building materials) found in big-box stores, but we are very deep in all the repair products.
Q Do you have a person you see as your typical customer?
A We see a lot of customers, whether they are young or middle-aged, they are looking for a part they need. They have a faucet that leaks. They have a hinge that doesn’t work. They are coming here seeking answers and products.
Q What area do like to open new stores in?
A We like higher-density areas with modest homes that need repair.
Q What is the average time a worker has been with the company?
A Well over 10 years. It’s very impressive. There is a culture at Orchard that goes back. It started here in San Jose and it’s the only home center, big hardware store, that exists like it does today. And it’s because of the people. A lot of the experience, we think, is the service you get in our store, where you can want that one little item and somebody knows what that one little item is.
…
Q What was it like coming to Orchard from Home Depot?
A It’s been 10 years since I left Home Depot, but I can tell you that the cultures are not that different. They are both companies that care about the success of the business and their relationships with the customers.
FIVE facts
ABOUT MARK BAKER
1. Flies a Cessna Caravan to visit Orchard stores.
2. Owns a Harley-Davidson Road King motorcycle.
3. Does his own home repair jobs, and has built three homes from the ground up.
4. Last book: “Steve Jobs.”
5. Last movie: “Mission Impossible.”
Disclosure: Author owns shares on OSH, OSHSP and SHLD
Local Paper Interviews Marc Baker, CEO of Orchard Supply Hardware is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
We’ve written before about the puzzle of Orchard Supply Hardware Preferred(OSHSP). This preferred issue was spun off from Sears Holdings(SHLD) together with Orchard Supply Common(OSH). While we’re still not sure how to value them, thanks to Laurie Frederiksen, COO of bivio.com for pointing out some tricky tax treatment for their distribution.
It seems that unlike most spinoffs which are tax-free- Rouse(RSE) is another recent exception – the preferred shares are subject to “Section 306″ and are treated as dividends. The fair market value of the preferred stock on the day of distribution(with some latitude here as the stock moved quite a bit) is treated as dividend income and adjusts cost basis on the preferred downward. Subsequent sales can be subject to an additional capital gain, though no losses may be taken. Investors are likely to have had some of this stock sold and received cash in lieu of fractional shares- this will trigger complex tax issues for an insignificant amount of money. Unfortunately, the IRS considers all income to be material, resulting in high overhead for small investors struggling to figure this all out.
Disclosure: Author owns OSH, SHLD and OSHSP
Tricky Tax Treatment For Orchard Supply Preferred Shares is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
It’s been a brutal year for Sears Holdings(SHLD) and a brutal year for Eddie Lampert’s hedge fund ESL investments. ESL has recently handed over shares of AutoNation(AN) to investors, presumably to cover redemptions, but it looks like Mr.
Lampert is not willing to part with shares of Sears. The WSJ reports, based on public filings, that Lampert purchased 4.46 million shares of Sears from the fund, and spent another $12 million purchasing shares on the open market. In our opinion this is a positive sign. That Lampert did not inject cash into the company by purchasing new shares, or by purchasing new securities senior to common equity, or by purchasing outstanding distressed debt, sends a strong message that he does not believe the company is at risk of bankruptcy or that it faces a liquidity crunch.
UPDATE: Redemptions were paid in AutoZone(AZO) shares, not AutoNation which ESL also owns a large stake in.
Disclosure: The author owns shares of SHLD
Eddie Lampert Doesn’t Fear Sears Bankruptcy, Personally Purchases $150 Million Worth Of Sears Stock is a post from Inelegant Investor – Something of Value. All Rights Reserved.
Sears Holdings(SHLD) can’t seem to catch a break. After weeks of falling, Sears stock rallied 8% today on no news. Shareholders should cut their rejoicing short after tonight’s report from Bloomberg that CIT(CIT) will no longer finance
vendors for their sales to Sears. CIT would not confirm reports, but Sears spokeswoman Kimberly Freely confirmed the action in an email to Reuters
“We disagree with their (CIT’s) action, in fact we’d point out that other factors are approving shipments to Sears Holdings and CIT’s payables represented less than 5 percent of inventories,” Freely said.
Freely explained that “at the end of December, Sears had about $4.2 billion of liquidity, including cash balances of about $0.9 billion” CIT’s action by itself should not threaten Sears future, but if other factors follow suit, the situation could quickly deteriorate. Sears is in the midst of closing stores and increasing its cash position, and should be in a better situation later in the year, if it can continue to operate normally. Ironically, Edward Lampert, who controls a majority of Sears shares, also owns 2.9% of CIT, which lost 25% of its value in 2011.
We’ve written before that Sears needs to make major changes before its too late. The company has continued to make important moves such as its recent hire of an experienced merchandiser. Unlike Eastman Kodak(EK), the company has enough liquidity to turn things around, but time is rapidly running out.
Disclosure: The author owns shares in $SHLD
Has The End Begun For Sears Holdings? CIT Stops Financing Sears Vendors is a post from Inelegant Investor – Something of Value. All Rights Reserved.
It’s been a pretty bad first week for Orchard Supply(OSH). Since beginning trading on Tuesday following its spin off from Sears Holdings(SHLD) at $25 with a quick rise to $60, the stock has moved almost straight down to its current price of $15.62. Yesterday, the company released some preliminary numbers which show some encouraging trends, but still couldn’t stop the bleeding as it’s down over 6% today. The company is basically break-even on a cashflow basis, is showing positive comp sales, is opening and remodeling stores, and trades for under 3 8(UPDATE: Larry pointed out we inadvertently used market cap rather than enterprise value) times EBITDA. The company also posted a presentation which provides more detail and before/after pictures of store remodels. We found the presentation to be informative and it gave us confidence in the company’s plan. We found the graph of same store sales comparisons informative- the company has arrested and reversed a long pattern of declines. We believe many Sears holders are selling small lots because this does not fit with their original investment and thus driving the price down. We are looking to buy more ourselves in the coming days at these prices or lower. From the press release:
SAN JOSE, Calif.–(BUSINESS WIRE)– Orchard Supply Hardware Stores Corporation, a specialty retailer focused on the consumer segment of the home improvement market, today announced expected financial results for the fiscal year ending January 28, 2012. The Company expects to report final financial results for the period in April 2012. On January 3, 2012, the Company began trading on the Nasdaq Capital Market following its spin-off from Sears Holdings Corporation on December 30, 2011.
Expected Fiscal Year 2011 Results
- Net sales for the fiscal year 2011 ending January 28, 2012 are expected to be in the range of $659.2 to $663.1 million.
- Fiscal 2011 comparable store sales(1) are expected to be in the range of negative 0.3% to negative 0.9%. The Company expects to generate positive comparable store sales for the fourth quarter of fiscal 2011, marking the second consecutive quarter of positive comparable store sales.
- Net loss for fiscal 2011 is expected to be in the range of $15.0 to $17.0 million and includes a pre-tax, non-cash loss on sale of approximately $15 million related to sale-leaseback transactions. Fiscal 2011 net loss includes increased interest expense of approximately $0.4 million from the December 2011 amendments to the Company’s financing arrangements. The expected annual increase in interest expense from the amendments to the Company’s financing arrangements is approximately $4.5 million.
- Fiscal 2011 Non-GAAP Adjusted EBITDA (see reconciliation of Non-GAAP Adjusted EBITDA to net loss, below) is expected to be in the range of $40.6 to $44.0 million. Fiscal 2011 Adjusted EBITDA includes approximately $2 million of estimated annual costs of approximately $14.0 to $18.0 million associated with the Company’s transition to an independent, publicly traded company and with the Company’s recent actions to help improve its financial position through recent sale-leaseback transactions. The estimated costs are outlined below and are also discussed in the Company’s Form 8-K filed with the Securities and Exchange Commission on December 29, 2011.
- Annual rent expense for five sale-leaseback properties is expected to be approximately $5.0 million. Projected 2011 Adjusted EBITDA includes approximately $0.5 million of rent associated with sale-leaseback properties.
- Annual operating costs associated with the Company’s transition to a publicly-traded company independent from Sears Holdings Corporation are estimated to be $5.0 to $8.0 million. Projected 2011 Adjusted EBITDA includes approximately $1.5 million of estimated transition-related expenses.
- Projected 2011 Adjusted EBITDA does not include any incentive compensation expense as performance targets were not achieved. The Company anticipates finalizing an incentive plan for fiscal 2012, which is expected to have an annual expense of $4.0 to $5.0 million.
“We are pleased with the comp store sales momentum we’re beginning to generate,” said Mark Baker, President and CEO. “Our new strategies are gaining traction, marked by effective inventory management, compelling product and merchandising, and a more cohesive and streamlined presentation in the stores.”
“In preparation for the spin-off, we incurred additional costs associated with establishing and expanding our corporate support infrastructure and in strengthening our financial position by renegotiating our financing arrangements and monetizing Company-owned store properties through sale-leaseback transactions. These initiatives have helped us start to lay the foundation to develop and evolve the Orchard brand, but have adversely affected our short-term profitability.”
Fiscal 2012 Store Opening Plans and Comparable Store Sales Expectation
The Company expects to achieve positive comparable store sales(1) for the 2012 fiscal year ending February 2, 2013. Additionally, the Company plans to open up to three new stores and remodel up to six locations. The Company’s remodel plans include three stores involved in the sale-leaseback transactions completed during the fourth quarter of fiscal 2011, which will be primarily funded by tenant improvement allowances.
Mr. Baker continued, “We’re focused on five key priorities to drive improvement in the business. These include projecting a consistent and compelling brand identity, driving sales through new merchandising and marketing initiatives, improving operational efficiency, aligning resources and talent, and continuing to strengthen our financial position. While we have made progress, we believe there is a significant opportunity to deliver long-term growth and create shareholder value as we leverage Orchard’s 80-year brand history and execute on our strategic plan.”
“We have an exceptional team in place with deep experience in the home improvement and specialty retail sectors, and look forward to keeping you updated on our progress as we begin our first year as a publicly traded company. A presentation will be posted today on our website to help our new shareholders understand more about our Company,” concluded Mr. Baker.
Disclosure: The author holds shares in SHLD and OSH and intends to purchase more OSH in the next 72 hours
Orchard Supply Hardware Stock, Spun Off From Sears, In Tail Spin- Time To Buy is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.
Sears Holdings(SHLD) issued a press release this morning announcing the completion of the Orchard Supply Hardware(OSH) spinoff.
Sears Holdings Corporation (“Holdings,” “we” or “our”) today announced that it has completed its previously announced spin-off of its interest in Orchard Supply Hardware Stores Corporation (“Orchard”). Orchard is now independent from Holdings and its Class A Common Stock will begin trading on Jan. 3, 2012 on the NASDAQ Capital Market under the ticker symbol “OSH,” and Orchard’s Series A Preferred Stock will be quoted on the OTCQB. Holdings will continue to be listed on the NASDAQ Global Select Market under the symbol “SHLD.”
The spin-off was effective at 11:59 p.m. EST on Dec. 30 , 2011. Holdings’ shareholders of record as of the close of business on Dec. 16, 2011 , the record date for the spin-off, received shares of Orchard Class A Common Stock and Orchard Series A Preferred Stock, on a pro-rata basis, that were held by Holdings immediately prior to the spin-off.
Our shares have already shown up in our brokerage account under their CUSIDs, with no value attached as they haven’t traded yet. It will be interesting to see where they go when they open on Tuesday.
Disclosure: The author owns shares in SHLD, OSH and OSH preferred
Sears Holdings Completes Orchard Supply Hardware Spinoff is a post from Stock Spinoffs – Finding Value in Special Situations. All Rights Reserved.