Sears now loses cash, as of the last two quarters. It must spend to revitalize stores in an environment of consumer tightening. Meanwhile the competition with Wal-mart, Costco, and Amazon continues. But the real reason to not own Sears is commercial RE. Once the reason why many bulls in recent years cited Sears as a great value play, it is quite possible that the value of the CRE neath Sears stores is actually worth nothing. Think about it. Even the best retailers will have to shut down stores and shrink during a consumer depression. thus their CRE holdings are less than everyone thinks. But what about Sears, how many of their stores are truly great locations with superior product (the store) vs. competitors? Sears has been doing the opposite of spending money to improve stores, for years it consolidated under Lampert. These actions shouldn't leave one confident that Sears is uniquely positioned to be the retailer of choice amongst shoppers. So if the balance sheet item of RE takes a valuation hit, to the tune of 65% of its value, then Sears has a negative book value and is only worth what it's stores can generate in cash-flow, which right now as of 1H 2009, is a negative number. So watch the cashflows and the CRE market prices. But then again, just watch SHLD share price, it might actually be the economy's leading indicator-- being dependent on consumer spending and CRE prices, after all!
$63.66 (09/11/09)
