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January 29, 2007

Sears Holding Follow-Up

Late last year, I sold my position in Sears Holding (SHLD) on the basis that I no longer had an edge in analyzing the shares. I am willing to buy back the shares if I feel my edge returns, so I was especially interested when Credit Suisse analyst Gary Balter, the clear axe in the stock, came out with a really interesting new report on SHLD last week.

What I like about Balter's latest post is that it cuts against the conventional wisdom coming from the retailing experts who are usually quoted whenever SHLD is in the news. Here is some of what Balter had to say in his latest report:

Chief among the many criticisms of Sears is the argument that they are not investing to build a long term sustainable retailer but are milking the business. That argument ignores among other items the investments in Sears Grand and Sears Essential, Lisa Schultz and the apparel effort, Maureen McGuire and her marketing changeover and of course Alwyn Lewis. In the latest sign that Sears is serious about its business, last night the company announced its highest profile higher since Mr. Lampert took control.

Balter goes on to discuss the hiring of a highly regarded Best Buy executive to the position of Chief Customer Officer and the Office of the Chairman. Retailing experts will no doubt argue that no amount of management talent can save Sears and Kmart but maybe what these experts are really admitting is that they don’t understand Lampert's strategy. Speaking of the retail strategy, Balter says:

Our view is that they do care, but that they care in a way that brings better service to the customer and better bottom line cash flow to the retailer. That is not the way the way many retailers drive their business, where comps is the primary factory, but is the way the better ones it….

Time will tell if the retailing strategy Lampert is using will prove successful. Depending on what strategic direction the company takes, the retail results may not even drive long-term stock performance. In the meantime, the lesson of SHLD, which has gone from less than $20 to $180, is that we should question conventional wisdom and remember that there is often more than one way to analyze a company.

Posted by Steve Birenberg at January 29, 2007 01:59 PM in SHLD