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ltluvit
Joined: 27 Mar 2006
Posts: 282
Location: east of the Mississippi and north of the Ohio
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Posted: Sat Sep 05, 2009 8:22 pm Post subject: Lampert Speaks
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Sorry about the length, not sure if Barron's letters are by subscription only
LT 
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from Barron's, Sat 5 Sep 2009
Letters to the Editor
Chairman of Sears Holdings responds to a Barron's cover story about his company.
Lampert Speaks:
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To the Editor:
The Barron's Aug. 24 article that discusses Sears and ESL Partners was misleading, inaccurate, and poorly researched. Without responding to each inaccuracy, I want to correct some of the more important misstatements and address the overall negative bias in the presentation of facts.
First, let me be clear, as I have been in my recent letter to shareholders: the performance of the company is not where I would like it to be. The executive team and associates of Sears have all been hard at work in attempting to change this performance in an environment that has been less than friendly to the entire retail industry. At the same time, contrary to the theme of the article, we have made some important progress in 2009. During the first half of this year we amended and extended our revolving credit facility through 2012 and we improved our Adjusted Ebitda by 9% over last year's first half. By contrast, most of our major competitors saw a decrease in their Ebitda performance. In addition, during the year-to-date period through August 21, 2009, our stock price increased 70%, outperforming all of our large competitors.
Turning specifically to the article, the author [Jonathan R. Laing] begins by rehashing much of the speculation surrounding the merger of Kmart and Sears that was generated by so-called industry experts and analysts. During 2006 and 2007, several analysts' reports speculated about value inherent in the company that was significantly above the trading value of the company at the time. Those reports were neither encouraged nor generated by our company and the author of the current article cites his own reporting from two years ago that argued for such significant "hidden value." Having set up the situation with such speculation, many of these same analysts and commentators then proceeded to criticize us for not being able to deliver on the speculation or the values that they themselves created.
The Use of Ebitda as a Performance Metric: The author emphasizes that Sears likes investors to focus on a "number of its own confection" called adjusted earnings before interest, taxes, depreciation and amortization (Ebitda). Any sophisticated reader will recognize that Ebitda is not some made up metric that we invented out of thin air but rather one that is used as a metric of performance by countless companies and industries. In fact, we use this number for internal management and for compensation purposes (adjusting it for special charges and items we believe are non-recurring), and I would think that it is appropriate to describe our results in those terms for investors and analysts who care about how we are measuring the operating performance of the business. Your criticism of this measure is surprising both because we place GAAP (Generally Accepted Accounting Principles) accounting numbers first in our press release and also because the parent company of your publisher, News Corporation, highlights a non-GAAP financial metric called "Adjusted Operating Income" in the title of its own earnings releases. In addition, among our largest retail competitors, Home Depot, J.C. Penney, Macy's and Best Buy report similar non-GAAP adjusted operating metrics in their press releases.
The Value of Disclosing Special Charges: Analysts are free to evaluate the "special charges" as they wish. We have broken them out to highlight the results from operations as opposed to the results from items that are not expected to repeat like the litigation win in the second quarter of 2008. We follow the same convention as J.C. Penney regarding breaking out and adjusting for our legacy domestic pension expense to promote operating performance comparability and because reported pension expense has no bearing on pension funding. No company can disclose absolutely everything, but the way we disclose our information gives analysts an opportunity to make their own judgments using these measures or to ignore them.
The Cash Flow Impact of Store Closings: The author also emphasizes that there will be "a lot more red ink" because the company has so many under-performing stores that will need to be closed. We have been and will continue to evaluate the performance of under-performing stores. We base our decisions related to store closures on the cash flow as opposed to the accounting impact. We expect that closings of unprofitable stores, if any, will generate cash (as they have historically), even after including all costs of closing the stores such as severance, and will eliminate ongoing losses from operations. So, the assertion in the story about how any future store closings will bleed the company is just not consistent with reality or historical precedent.
Our Measured Approach to Cost Cutting: Another misleading feature of the article is the exaggeration of the extent of our cost cutting in an attempt to make it appear that what we are doing is somehow extreme or unproductive. What we have done at Sears is prioritize our spending, both in terms of capital and expenses, in areas that we believe will contribute to future profitability and competitiveness, while reducing and reallocating certain expenses that those who are more conventionally focused might disagree with. Our performance and the performance of many other companies would be significantly worse had we not been disciplined about our expense management and, following the author's logical conclusion, had we not cut costs or had we actually increased our spending.
The Ability to Extend our Credit Agreement: With respect to our credit agreement extension, the author asserts that the amended and extended credit agreement has "onerous terms compared with its predecessor." While it is true that the new credit agreement is less favorable than the prior one, this is a reflection of many factors and is true of almost every company not eligible for TARP funding or debt guaranteed by the FDIC associated with such funding. In fact, the Sears revolver is one of the largest transactions completed in the market over the past year and is a reflection of the confidence of our financial partners as well as the substantial asset base of the company. The accordion feature in the agreement provides the company with the ability to increase the size of this secured facility by $1 billion. This feature provides a significant potential benefit to the company, and the agreement by the lenders to allow for this feature reflects their recognition that the facility is substantially overcollateralized given the very significant inventory underlying the facility.
The ESL Partnerships: The depiction of what the author, in language disparaging both to my partners and to ESL itself, describes as an attempted "jail break" continues the article's theme of inaccuracy and bias. How and from whom he got that information is unknown to me (he references other hedge fund investors) and the lack of accuracy describing the situation is obvious to anybody who knows the actual details.
Last fall, during the market meltdown, I initiated an amendment to the partnership agreement when it became clear that a performance provision, which had never before been triggered, might result in a request (not a requirement) for redemptions that could undermine the long-term commitment that was and is the basis on which my partners invest with me. My partners, both new and longer term, were strongly supportive of the change and overwhelmingly approved the amendment. In fact, even if the amendment had not been approved, the provision was never triggered -neither at the end of 2008, nor in the first two quarters of this year.
Finally, while Sears Holdings is a large and important investment for ESL, its proportion of the overall portfolio is substantially less than the over 50% referenced in the article. My track record as an investor and as a partner is clear to those who know me, and I take great pride in the long term relationship I have with my partners.
While I am sure that skepticism and criticism of the company and our approach will continue, at least until such time as it becomes more clear that our transformation is gaining traction from a customer and financial viewpoint, I would hope that Barron's would base any criticism on the facts and present a balanced and fair analysis of the situation.
Edward S. Lampert
Chairman of Sears Holdings,
Chairman and CEO of ESL Investments
Hoffman Estates, Ill.
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Jonathan R. Laing replies:
Edward Lampert may favor adjusted Ebitda for Sears Holdings, but it's a misleading number since, as a mature company, Sears has to pay the taxman, meet interest payments and invest in its huge asset base of stores. Moreover, special items like store closing costs and pension fund contributions are now hitting the income statement on a recurring basis. Free cash flow is the superior measure; on that score, Sears is losing ground, even after chopping maintenance capital spending. Sears was emphatically more than half of his hedge fund as of the date we cited, according to his own 13-F SEC filing in the fall of 2007.
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Nofsdad
Joined: 06 Jul 2003
Posts: 8377
Location: Central CA
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Posted: Sat Sep 05, 2009 9:01 pm Post subject:
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Thanks for putting it up there LT. It was pretty close to what I expected. One thing that caught my eye:
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| ... and the lack of accuracy describing the situation is obvious to anybody who knows the actual details. |
Since huge pains are gone to to make sure that nobody outside SHC or ESL and the partnered hedge funds DOES know the actual details, that's a pretty self serving remark. Basically, he' saying that, "Only the people in my organization or partnered with my organization know what's really going on.".
Problem with that is, we're not allowed to ask them and they're not allowed to tell us. [/quote]
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bubbdog
Joined: 05 Jul 2008
Posts: 168
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Posted: Sat Sep 05, 2009 9:21 pm Post subject:
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Lampert seems to be defending himself and does not seem concerned with the overall decline in customer traffic and declining store sales that he and his "team" have been responsible for. He comes across in the editorial as arrognant and condesending to the author's observations. A big crybaby.
He can suger coat the poor performance of SHLD anyway he likes, but in the end his tunnel vision is going to hurt alot of employees and destroy much of what is left of either Kmart or Sears. What an a**hole!
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dictators_rule
Joined: 08 Jul 2003
Posts: 6287
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Posted: Sun Sep 06, 2009 4:02 am Post subject: pick at it
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Just like eddie I don't want to spend time ripping everything apart.
Bubb,Nofs and the author Laing sum it up well. Eddie doesn't get it. He can do no wrong. It IS a condescending letter.
Mr ed harps on the 'unlocking the value of the real estate and brands'. The analyst probably speculated about the real estate because mr ed got companies like Sears to overpay for a handfull of Kmart stores that almost valued Kmart's entire bankruptcy. Or perhaps it was because mr ed supposedly got Vornado(real estate investor) to back off their attempt at Sears. Hmmm, over selling questionable real estate and 'the value' of bid up by an ex ' associate ' running a real estate fund. Nah, no reason to suspect real estate in the motive here.
But I still find it hard to believe that no one associated with mr ed didn't leak that angle behind mr ed's back for plausable deniability even if it was one of his investors.
More ripping later.
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GoodFella
Joined: 04 Jul 2003
Posts: 2398
Location: A little bit sideways!
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Posted: Sun Sep 06, 2009 4:21 am Post subject:
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Great link LT. Thank you.
I love this line.
http://online.barrons.com/article/SB125210385440187567.html?ru=yahoo&mod=yahoobarrons
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While I am sure that skepticism and criticism of the company and our approach will continue, at least until such time as it becomes more clear that our transformation is gaining traction from a customer and financial viewpoint
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Who's got that kind of time? Moses? ~GoodFella
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goneforgood
Joined: 04 Jul 2003
Posts: 517
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Posted: Sun Sep 06, 2009 12:15 pm Post subject:
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Eddie is  whining like a baby..Love it . GFG
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allhandsabandonship
Joined: 28 Apr 2005
Posts: 2164
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Posted: Sun Sep 06, 2009 10:38 pm Post subject:
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[quote="GoodFella"]
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While I am sure that skepticism and criticism of the company and our approach will continue, at least until such time as it becomes more clear that our transformation is gaining traction from a customer and financial viewpoint
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Yeah that's a great line. The transformation from a world class customer service oriented company to a blight on a earth is already perfectly clear. It's kind of remarkable the guy can even make such a silly statement in light of worsening sales declines. If things were even slightly moving in the right direction, maybe it would make sense to talk about "gaining traction".
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searsdealer
Joined: 14 Dec 2005
Posts: 236
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Posted: Mon Sep 07, 2009 3:46 pm Post subject:
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My Grandfather once told me "If you have to defend it you are surely worried, actions will always speak louder than words."
If Lambert is now on the defensive. His numbers can not speak for him so he is now having to defend is actions.
He's backed himself and Sears into a corner and the only thing left for him to do is try and talk his way out. It looks like he is going to take a beating instead.
When Barron's see's the truth then all the "Big Boys" know you have failed.
Last edited by searsdealer on Tue Sep 08, 2009 3:10 pm; edited 1 time in total
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TheRedLanyard
Joined: 05 Jul 2007
Posts: 59
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Posted: Mon Sep 07, 2009 4:44 pm Post subject:
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Wahh... did somebody hurt little Eddie's feelings and step on his ego? The whole tone of the letter was one of "How DARE you point out so many of my personal and professional flaws in public!!!"
Whadda LOSER!
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Nofsdad
Joined: 06 Jul 2003
Posts: 8377
Location: Central CA
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Posted: Mon Sep 07, 2009 6:49 pm Post subject:
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I've spent roughly the last two years wishing I'd met Eddie so I could personally kick his ass so hard, he'd have to take off his shirt to take a crap.
Now I can rest easier because he's kicking his own ass... in public... every three months or so and I'm not even having to exert myself. Life ain't that bad after all. 
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justanothersearsdolt
Joined: 21 Feb 2005
Posts: 317
Location: Chicago Il.
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Posted: Tue Sep 08, 2009 11:42 am Post subject:
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He's moronic. His approach is measured and deadly to the sustainability or growth of this company. I have gone from being a huge fighting rebel in this organization to being a defeated, old, tired guy ready to bolt at the first opportunity.
Doing the right thing did not and will not prevail. Eddie and the boys will be sure to thwart progress and customer good will. I notice every week, as I interface with associates from around the company that the one's who really care are running a race they now realize they can't win. The desire to pull it out is waining. Now it is a hang on and get what you can before they rape your dignity and intellect.
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dictators_rule
Joined: 08 Jul 2003
Posts: 6287
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Posted: Tue Sep 08, 2009 4:01 pm Post subject: what is your agenda ?
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mr ed even has the gaul to call those who have covered the retail beat in media to be ' so called experts '.
Not only is mr ed whining but it seems like he is crying about the pressure or expectations the media placed on him and YET he didn't seem to complain when he was touted as the next Buffet.
But see since mr ed really hasn't laid out his agenda he opens himself up to speculation & speculators. If retail is his agenda he sure as heck hasn't shown it.
Another 'but' BUT I still think the crew had much of this ' speculation ' leaked or released on their behalf. If ' the hidden ' value of SHLD ie brands & real estate isn't your agenda mr ed what it is it ?
AND if you are covering up or being nice to the old Sears Roebuck crew by not revealing the true condition of what you found when your crew took over Sears just let us know. I'll be first in line to find exactly how fracked up the old Sears Roebuck was. As a matter of fact I'd like to know more of what your crew found when you inherited Kmart. If you don't have the money to spend because of cooked up books just let us know.
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In HarmsWay
Joined: 22 Jan 2008
Posts: 124
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Posted: Thu Sep 10, 2009 4:22 am Post subject:
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Well, I could read a page prepared by a lawyer too, to explain many things wrong. I would rather hear from the head man or woman, why this company is in such miserable shape, why it cannot do something simple like deliver an appliance, without 50,000 problems, phones ringing constantly with angry customers, a workforce that is totally stressed out and undercompensated,why everyone who works in this hell hole is counting the days till they can escape it,why investors are or will be ready to flee......never mind.....the answer is obvious. It's right in front of us, It's so simple.....it's all about the almighty buck. Nothing ever changes. And it aint just Sears. Here's how to make money in modern day America:....Put a straw into a business, suck it dry, run away with as much money as you can, while you can, all the while proclaiming good intentions and using every loophole you can find to buy time. P.T. Barnum said it well; "There's a sucker born every minute".....I know that this is not a political forum, but you have to agree that as long as the powers that be allow this kind of profiteering and greed to take place in the business world, nothing will ever change. And, a footnote.....Ross Perot was not the simpleton he was made out to be in some media circles. I think he had a pretty good idea of where this country is headed....
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dictators_rule
Joined: 08 Jul 2003
Posts: 6287
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Posted: Thu Sep 10, 2009 4:49 am Post subject: put a straw in it
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InHarmsWay - ' put a straw in it and suck it dry '
LOL - Soooo true , everything. But that nails it!
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allhandsabandonship
Joined: 28 Apr 2005
Posts: 2164
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Posted: Fri Sep 11, 2009 1:33 am Post subject:
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| In HarmsWay wrote: |
| Well, I could read a page prepared by a lawyer too, to explain many things wrong. I would rather hear from the head man or woman, why this company is in such miserable shape, why it cannot do something simple like deliver an appliance, without 50,000 problems, phones ringing constantly with angry customers, a workforce that is totally stressed out and undercompensated,why everyone who works in this hell hole is counting the days till they can escape it,why investors are or will be ready to flee......never mind.....the answer is obvious. It's right in front of us, It's so simple.....it's all about the almighty buck. Nothing ever changes. And it aint just Sears. Here's how to make money in modern day America:....Put a straw into a business, suck it dry, run away with as much money as you can, while you can, all the while proclaiming good intentions and using every loophole you can find to buy time. |
That sums it up nicely..  It's all about the almighty buck, and a system run by people who consider nothing else but getting more bucks for themselves.
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