Compounding Machines

2009 Sears Holdings Annual Meeting Notes

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The Monday following the Berkshire meeting, I attended my second SHLD in as many years. Overall, I felt both the questions and answers were a step back from last year. You can find my (disorganized) notes below.

2009 Sears Holdings – Annual Meeting Notes

Monday May 4, 2009 – Hoffman Estates, IL

1.) Bruce Johnson, interim CEO, opened the meeting with a brief presentation.

– Disappointed with 2008 performance caused in part by excess poor economy

– Chart shows that relative to SHLD’s largest 12 competitors, SHLD’s comps exceeded 9/12 in   the Q4….in the past SHLD was one of the worst

-K-Mart improved profitability by 18% in Q4….among closest competitors; WMT was the only other one able to do this

-Layaway was a success in Q4, added 1.4 million new layaway customers, which has the ancillary benefit of getting them in the stores every two weeks to make payments

Market Shares:

–         Appliances: 34.6% (regained momentum in 08 with Blue Crew ad campaign…market share went from 30% in Q107  to 34.6% at end of 08)

–         Tools: 22.3% (working on invigorating Craftsmen brand)

–         Power lawn and garden: 21% (expanding Blue Crew to lawn & garden)

–         Home repair: 14%

-working on building home brands in 09 (Cannon, Jaclyn Smith)

-Sears apparel business has been and still is quite challenging….Land’s End does well as      reported in the shareholder’s letter, but they are focusing on these brands: Carter’s,          Arrow, LL Cool J, Oshkosh

-Bringing Protégé shoes (sponsored by NBA player Al Harrington) to Sears stores in July

Q&A w/ Lampert

-Question about prototype stores and what was learned from Sears Grand/Essentials stores (neither of which worked as well as planned):

  • Can we make the existing real estate footprint useful post Wal-Mart Supercenter world
    • Selling off real estate was never intention. Whether that was a good decision remains to be seen.
  • My Gofer – service as much as it is a store, a fulfillment warehouse
  • Want to make it easier for customers to shop
  • Question is whether it resonates with customers (Essentials did not)
  • “I want to get it right.”
  • Trying to encourage customer involvement/interaction

-Eddie comments on creating an internal system, P&L for each business unit to increase focus on profitability

  • Rights of each business unit
  • Real estate unit to be responsive to third parties for utilizing store space
  • Significant space dedicated to apparel
    • Unproductive productivity (?)
    • Giving each area a P&L, cap ex
    • Compared old system to socialist system
    • Allowing people to run at their own pace that way

-How much do you listen to people?

  • Encourage experiments
  • Encourage employee feedback
  • Proud of progress
  • Want to position the business to benefit on upside, operating leverage on upside
  • Don’t go in shell

-Biggest disappointment and discussion of retail operations:

  • Biggest disappointment was failure of Kmart prototype stores
  • Specialty retailers took advantage of one-stop shops
  • Home & auto service will be managed as brands going forward
  • People are changing the way they make decisions
  • Asking how do we communicate with customers if half of newspapers go away
  • Order online and pick-up in store is coming to Kmart
  • Where people chose to shop depends on what’s going on online with friends
  • Online appliance experience is the best
  • They have 200 million square feet of space they need to maximize

*NOTE: at about this time I took notes less frequently as the questions got worse and worse. Overall, the quality of the questions and answers left a lot to be desired this year.

-Book recommendations:

  • From Third World to First
  • Road to Serfdom

-Other comments/responses:

  • When you get incentives aligned properly, the odds are much greater for a good outcome. The biggest mistakes come from misaligned incentives.
  • Would like to have sales go up, but not at the expense of profit
  • Could “rent” market share (referring to worrying solely on increasing sales)
  • Problem with naked shorting
  • Lending SHLD treasury shares is not the right was for the co. to make money
  • Commented on status of credit line renewal (good news)
  • Availability of credit to make acquisitions
  • Sufficient access to credit for operations or acquisitions
  • Credit markets have improved
  • Types of funding, cost will change
  • On a relative basis, they would have been as good repurchasing stock at $160 (which they of course did) as almost anything else. (No regret to speak of from the Chairman here)
  • Store-in-store prototypes are not getting specialty retailing results
  • Lands’ End is a much more stable business
  • Competing for customers not against competitors

-Question about insiders selling SHLD stock (Perry Corp., Richard Perry’s firm had recently shed over half its position)

  • Insiders sell stock all the time
  • Will sell stock at some point (not something I was fond of hearing)
  • Know your goals, when you will need money
  • They have constructed a board of owners

Written by sdinvest

August 4, 2009 at 2:17 am

Posted in Sears Holdings

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