Dear Mr. Berko: Sears finally reported a profit last May — $2.28 a share. My stockbroker had me buy 1,000 shares in early June at $7 because he thought Sears had turned the corner to profitability. He insists Sears will trade in the low $10s this year and wants me to buy 1,000 more shares. What do you think? And what do you think of Coca-Cola’s new diet soft drink? My broker also wants me to buy 200 shares of Coke. Please advise me.
— G.H., Vancouver, Wash.
Dear G.H.: Your broker has GAPO (gorilla armpit odor) and an IQ low enough to freeze water. Sears is still your grandfather’s store and can’t change. And CEO Eddie Lampert wants to empty every Sears store as fast as he can so his Seritage Growth Properties (SRG-$45) can make a sizzling fortune from Sears’ misfortune.
Sears Holdings (SHLD-$6.97), in the traditional sense, didn’t earn a pfennig that quarter. The stock rallied temporarily as some investors, high on hope and low on brains (a condition caused by eating too many tofu burgers), bought the shares; they soon got butt-kicked by reality. Yeah, SHLD, for the first time in several years, reported a quasi-profit that quarter, but that profit wasn’t operating income. Rather, it derived from the sale of Craftsman to Stanley Black & Decker for $900 million. Those proceeds are called non-recurring income. So if we black those numbers out, SHLD had a loss of $230 million that quarter. SHLD is smoking cash at a rate of $150 million a month, and Fast Eddie’s hedge fund, ESL Investments, has $1.6 billion in loans to SHLD, at an average interest rate of 9.75 percent.
Fast Eddie’s Seritage Growth Properties should benefit hugely from Sears’ problems — all the more if he bankrupts Sears. Sears Holdings occupies many hectares of prime real estate. And SRG has the right to capture all of the space occupied by Sears, including by Kmart stores. The average Sears store is about 140,000 square feet, while the average Kmart is 94,000 square feet. Sears, as an original anchor tenant, pays an average of $3 per square foot, while smaller mall tenants pay between $12 and $16 per square foot. So Fast Eddie’s Seritage Growth Properties is renting Sears’ vacated space (after rehab) to Lucky’s Market, Whole Foods Market, Dick’s Sporting Goods, Scheels, medical practices, for-profit colleges, PetSmart, Nordstrom Rack, Saks Off 5th, new car showrooms, Dave & Buster’s, tattoo parlors, pawnshops and pot shops. New tenants are paying SRG an average of $18 per square foot, and Fast Eddie’s real estate investment trust is making a bundle.
