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   Non-TechSears Holdings Corp.

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From: Glenn Petersen10/25/2005 4:15:31 PM
   of 951
Rumors of stalled Sears strategy grow

October 25, 2005

BY SANDRA GUY Business Reporter

A Wall Street analyst gave voice Monday to rumors that Sears' ballyhooed strategy of building new stand-alone stores is in trouble.

Sears is counting on its newest store, Sears Essentials, to compete with big-box rivals such as Target, Kohl's and Wal-Mart, while also selling refrigerators, treadmills, lawn mowers and patio furniture.

Sears has denied reports that it is slowing or halting its plans to convert 400 Kmart stores into Sears Essentials stores within three years -- at a cost of about $3.5 million per store. But Sears hasn't yet announced how many Sears Essentials stores it will open in 2006.

Furthermore, two top Sears executives integral to the strategy have left or are leaving the Hoffman Estates-based retailer, Gregory Melich, an analyst at Morgan Stanley & Co., said in a note to investors Monday.

Catherine David, a former Target executive that Sears named to oversee Sears Essentials and two other stand-alone stores, left the retailer in September.

Sears hired David in July 2004 to turn around the struggling Great Indoors home-decor chain, which Sears had downsized a year earlier to 17 stores.

Sears also is losing Luis Padilla, another former Target executive and a merchandising whiz credited with putting the "chic" in Target's "cheap chic" reputation. Padilla is leaving at month's end, following Sears Chairman Edward S. Lampert's decision to install his own top strategists.

Furthermore, Sears is investing less than its retail rivals in its stand-alone stores, and has cut its advertising by more than 40 percent, Melich wrote.

More than 50 percent of Sears Essentials stores are within five miles of a Target, a Lowe's or a Home Depot, giving them tough conditions under which to compete, he said.

Other analysts have questioned the Sears Essentials format as unfocused and underwhelming.

"The store seems a hodgepodge of everything, and there's no clear message to consumers about what to expect," said Kim Picciola at Chicago-based Morningstar.

John Melaniphy III, a Chicago real estate expert at Melaniphy & Associates, said Sears has been noticeably silent about Sears Essentials' performance, in contrast to its bragging about exceeding expectations with Sears Grand, the company's largest stand-alone stores that are twice the size of a Sears Essentials.

Investors were hoping Lampert, a billionaire hedge-fund whiz, would have dropped any designs he had on retailing and sold much of Sears' real estate to turn a quick profit.

As time goes by, investors have gotten impatient. Analysts had estimated that Sears' stock would climb to $169 to $200 by year's end if Lampert sold assets. The stock ended the day Monday at $125.07.

Sears will open 49 Sears Essentials stores by year's end.

In Chicago's suburbs, Sears has converted former Kmart stores in northwest suburban Palatine and in southwest suburban Homer Glen to the Sears Essentials format. A Sears Essentials will open this weekend in west suburban Elmhurst.

Said Neil Stern of Chicago's McMillan Doolittle consultancy, "It's critical to the future of the company as a retailer to make this [Sears Essentials] work."

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From: Glenn Petersen3/21/2006 8:20:41 PM
   of 951
Lampert's Sears is still a work-in-process:

"We are a learning company that analyzes, tests and adapts as appropriate," Lampert wrote in a December letter to shareholders. "While we are clear on our vision, we recognize the importance of being flexible and quick to change if the situation warrants. We will not rely on a single grand strategy but will respond to customer desires and market opportunities."

`Good Life' is elusive for Lampert's Sears

Frugal boss of a once-dominant retail chain keeps investors guessing about his strategy to generate a real turnaround

By Susan Chandler
Tribune staff reporter

March 20, 2006

The Sears Essentials store sits forlorn in an old strip mall off Hicks Road in northwest suburban Palatine. A few dozen cars dot the giant parking lot, which is bordered by a former Card & Party Outlet store with a for-rent sign.

More than 150 blue shopping carts are lined up outside, but there are few shoppers inside the cavernous store on a weekday autumn afternoon. An appliance salesman in a white shirt and khaki pants leans back against a dishwasher drumming his fingers on the lookout for customers. A middle-age woman in a yellow windbreaker is frustrated that she can't find a pair of pumps in her size for an upcoming wedding. She leaves empty-handed.

Sears Essentials--the combination of Sears brands in former Kmart stores--was supposed to be the future of Sears Holdings Corp., the $55 billion retail Goliath formed by the March 2005 merger of Sears and Kmart. But as the one-year anniversary of the merger arrives, the outlook for Sears is dismal.

- At Sears' core chain of nearly 900 department stores, sales were down more than 8 percent in 2005 and plunged by 12 percent during the crucial holiday season.

- Sears Holdings' debt is rated "junk" by all three major rating agencies, a far cry from the A credit rating the old Sears earned for decades.

- Sears and Kmart are opening few new stores while competitors such as Wal-Mart unveil more than 300 new locations a year.

The man calling the shots on merchandising and marketing is Sears Holdings Chairman Edward Lampert, a 43-year-old hedge fund operator with no retail experience who gained control of Kmart while it was in Chapter 11 bankruptcy.

By rushing Kmart out of bankruptcy in 2003 and then using the still-struggling discounter to launch a bid for Sears in 2004, Lampert has stretched himself and vastly expanded the borders of his retail empire.

Lampert's supporters, and there are many in the investment community, believe he will be able to hold on to his prize. In a vote of confidence, they bid up Sears Holdings stock to more than $130 a share last week.

His critics wonder if he hasn't overextended himself. They also warn that Lampert's willingness to give up market share to fatten profit margins is shortsighted and self-defeating.

"What has been done is not sustainable," argues Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York. "The reason your sales dropped 12 percent is you cut promotions, you've increased prices, you've handed your customers to J.C. Penney, Kohl's, Target and everybody else."

Stuck in the middle

Sears finds itself stuck in the middle, its brand associated with stodgy merchandise and dated stores, despite its repeated attempts to update itself. These days, Sears "doesn't stand for anything," says Tim Calkin, a marketing professor at Northwestern University's Kellogg School of Management. "It's not really cheap and it's not really good."

Where Sears fits in the retail world is the big question, and it goes unanswered partly because Lampert is a bit of a mystery. He rarely gives interviews and declined several interview requests from the Tribune. Stock analysts get the same cold shoulder.

Lampert hates to fly and always goes to bed at 9:30 p.m., even when he is entertaining guests at his home, according to an acquaintance familiar with his routine. He surrounds himself with bodyguards because he was the victim of a kidnapping in 2003. Lampert talked his captors into letting him go by promising to leave $40,000 in a trash can behind a Wendy's. The kidnappers were apprehended and are serving jail terms.

Adding to his air of mystery, Lampert is calling the shots at Sears from Greenwich, Conn., where ESL Investments Inc., a bare-bones 20-person operation, is headquartered. He is addicted to his BlackBerry, and when he messages Sears executives, they stop everything they're doing to tap out a response.

Wearing suits perfectly tailored to his small frame, Lampert could easily be mistaken for a freshly scrubbed MBA graduate. But in a few short years, he has become one of the best-known investors in the country, and few people are willing to bet against him.

Lampert ranks 61st in Forbes' 2005 listing of the 400 richest Americans, with a net worth put at $3.5 billion.

Favoring companies with strong cash flows that had fallen out of favor with Wall Street, Lampert likes to compare himself with the country's most famous investor, Warren Buffett. No surprise. Lampert has studied Buffett--No. 2 on Forbes' list--like a scholar poring over a newly discovered ancient text.

Unlike Buffett, who generally takes a hands-off approach to operations, Lampert has earned a reputation for aggressively managing the companies he invests in. He focuses on reducing overhead and trimming capital investment, and he is unabashed about using cash flow to buy back shares.

He also is skeptical about investing in new stores and store remodeling. Last year, Sears and Kmart cut their capital expenditures in half.

Lampert acknowledges knowing little about retail other than what he gleaned as a teenager when his mother went to work as a clerk for Saks Fifth Avenue after his father died unexpectedly of a heart attack at age 47. His death left the family with little savings.

Lampert's lack of retailing experience hasn't discouraged him from acting as Sears' de facto chief merchant. Since September, managers handling merchandising, product development, advertising, the Internet site and the Lands' End division have been reporting to him. He has fabric samples sent to him in Connecticut, according to former Sears executives.

Some observers are skeptical Lampert has the skills to lead a turnaround at Sears.

"Lampert is a stock picker. Does that make you a good CEO or chairman of the board of a company? Usually no. They are different skills," said James Schrager, professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business.

"If Sears is going to bring in a new line of clothes, the CEO has to pass judgment on the stuff. A finance guy can ask classic finance questions such as, `What are the terms from the vendor?' `How fast will the inventory turn and how attractively can we price it?' `What is the margin?' These are not bad questions.

"But a retail merchant will take a holistic, completely different point of view. Psychologists call it instinct. We now know it is learned behavior, built from years and years of fighting in the trenches," Schrager said.

An outside consultant who has worked at Sears on management issues shares Schrager's concern. "They make the fatal assumption that if you're smart, you can figure it out. People say the same thing about sports, but Michael Jordan didn't make it in baseball, and you don't find much better athletes than him. In business, everybody is a specialized animal, but no one wants to admit it."

Keeping score

In the business world, it's easy to keep score. Increases in revenue, profit or return-on-equity are positive indicators. Decreases are not good.

Retail and restaurant companies have an additional way to measure themselves: same-store sales, the percent change in sales at stores open at least a year. In the retail world, same-store sales are a closely watched indicator of financial health and shopper enthusiasm.

From 2000-2004, Sears, Roebuck and Co.'s same-store sales declined each year. Results have worsened since the merger. In the 2005 holiday season, a make-or-break period for most retail chains, Sears' sales fell 12 percent, the worst showing of any major retailer.

Sears said its fashion offerings flopped with customers, but it also ran fewer promotional events, a deliberate strategy by Lampert to boost gross profit margins. Profit margins did go up and that was reflected in Sears' better-than-expected fourth-quarter earnings.

"We are not focused on sales or sales growth as an end in itself. Nor will we spend capital on stores simply because we have the capital available to invest or because everyone else does it," Lampert wrote in a shareholder letter last week.

Beginning in April 2005, a month after the merger closed, 780 Sears employees were laid off, most of them at Sears' Hoffman Estates headquarters. During private meetings with their managers, they were handed packets with terms of their severance packages, which were less generous than Sears employees had received in previous downsizings.

`We're losing money'

"We're losing money," Sears' communication specialist Rose Bertini told the Tribune last spring. "I don't mind them laying me off, but to not pay me what they said they were going to pay me, I don't understand."

Some departing Sears executives felt the same way.

Beryl Buley had been the executive in charge of managing and opening new stores at Kohl's Corp. when he was wooed away by Sears in 2003. Within a year, he was overseeing operations at Sears' 870 full-line stores and was responsible for the rollout of such new concepts as Sears Grand and Sears Essentials.

After the merger with Kmart, though, Sears Grand and Essentials were taken away from him, and Buley was told his operational team would be cut about 40 percent.

Buley asked for a severance package under the "change in control" provision of his employment contract, which entitled him to a generous payout. The salary and bonus alone would have added up to $1.7 million.

Sears refused to pay him.

Buley sued Sears in Chicago's federal court in June, alleging the company had "engaged in a pattern and practice of using discretion in an arbitrary and capricious manner in failing to provide proper severance benefits to similarly situated executives."

The case has since been settled.

Plenty of other top Sears executives have headed for the exit, too. Mindy Meads, CEO of the Lands'End division, was fired in August; Catherine David, the senior vice president in charge of Sears Essentials, Sears Grand and the Great Indoors, left in September; Luis Padilla, Sears' top merchant, departed in October; and Sears' apparel chief Gwen Manto left in December.

Left at the top are Sears' former CEO Alan Lacy, who was demoted by Lampert in September, and Aylwin Lewis, a former fast-food executive with no retail experience before he was named Kmart's CEO.

"Aylwin would say I'm a quitter, but I'm smart enough to know I didn't want to be on the team," said David, who spent 13 years at Target before joining Sears in 2004. "It would have been harmful to me to stay."

At Sears' headquarters, easy chairs scattered throughout the buildings have been removed. A satellite snack bar has been closed and the cafeteria's hours of operation shortened. When Sears staffers show up for 6 a.m. meetings, coffee is no longer routinely served.

Travel budgets are Spartan. The company will reimburse employees $25 a day for meals: $6 for breakfast, $7 for lunch and $12 for dinner. Hotel costs also are monitored closely, and in at least one case, Sears executives were prohibited from staying at a New York hotel where the company was holding an event because it cost too much.

Lampert's frugality also extends to his retail concepts. A Sears task force concluded it would take about $3 million per store to convert 50 old Kmarts to Sears Essentials. Lampert told them to make a go of it with $2 million per store. Almost three-quarters of that was spent on back-end functions customers don't see, like the information technology systems, leaving only about $500,000 for all the things they do see--new flooring, shelves, lighting and shopping carts, according to sources close to Sears.

Sears recently announced it was dumping the Sears Essentials format because of poor customer response and was changing the name of the stores to Sears Grand.

The real strategy

It's become conventional wisdom that Lampert began buying up the debt of Kmart Corp. because he recognized the underlying value of Kmart's extensive real estate holdings around the country. If Kmart couldn't make money at hundreds of its store locations, maybe somebody else would pay Kmart a premium for its parcels and turn them into retirement villages, office space or another retail chain--one having more cachet with shoppers.

That view appeared to be validated when Kmart sold about 100 stores to Sears, Roebuck and Co. and Home Depot in the summer of 2004 for almost $1 billion, close to what Lampert paid to acquire all of Kmart, which had 1,400 stores remaining.

But in the year since he acquired Sears, Lampert has done little to show that liquidation is, indeed, his strategy.

Lampert has said that Lands' End, the preppy catalog company that Sears acquired in 2002, is not for sale. Rather than selling off the company's majority stake in Sears Canada, Lampert has announced he will buy out the outside shareholders and make the operation wholly owned by Sears Holdings.

Several sources who have spoken with Lampert say it was never his intention to hold a vast real estate auction. From the beginning, he bought into Kmart and later Sears, intending to fix them and run the chains as more efficient and profitable retailers, they say.

Lampert has said the same thing himself, repeatedly.

"I bought Kmart to make money, and I felt the best way to make money was to have it be a viable retailer," he told Tribune reporters the day the merger with Sears closed. "Allen Questrom came out of the retail business, and people gave him four or five years [to turn around J.C. Penney Co.] We've been at this for two years, and people have been selling us short from the beginning. We've accomplished a lot in two years."

Retail consultant Cynthia Cohen, for one, takes Lampert at his word.

"I don't believe the real strategy is liquidation," said Cohen, the president of Strategic Mindshare, a Florida-based retail consulting firm. "If you look at his involvement at AutoZone, he wants to create shareholder value through the operations of the business. I think that's very clear. He wants to win and make it work."

If Lampert has a plan for rejuvenating Sears, he has not unveiled it. One year after the merger deal, he describes Sears Holdings as a "$55 billion revenue, 350,000-person start-up" and characterizes his retail strategy as a work in progress.

"We are a learning company that analyzes, tests and adapts as appropriate," Lampert wrote in a December letter to shareholders. "While we are clear on our vision, we recognize the importance of being flexible and quick to change if the situation warrants. We will not rely on a single grand strategy but will respond to customer desires and market opportunities."

Copyright © 2006, Chicago Tribune

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From: Glenn Petersen3/22/2006 8:49:48 PM
   of 951
The chain of events that put Sears into play:


Credit gets its due in retailer's sale

It may be said that an anonymous letter about Sears' credit card unit chief sparked a chain of events that eventually led to the takeover by Kmart

By Susan Chandler
Tribune staff reporter

March 22, 2006

Kevin Keleghan was puzzled but not alarmed when he answered a Friday morning summons in October 2002 from Sears, Roebuck and Co. Chief Executive Alan Lacy. He didn't feel a pit in his stomach until Lacy walked into the conference room with the head of human resources.

"Kevin, I have to have a very disappointing conversation," he told Keleghan, the head of Sears' giant credit card business. "I've decided to release you. I'm very disappointed about that."

Keleghan couldn't believe what he was hearing and asked Lacy if he was kidding. Lacy wasn't. Then Lacy told Keleghan he was being fired "for cause" and wouldn't be getting a severance package.

Keleghan wasn't the only one caught off guard.

His abrupt firing shocked and worried Sears investors, as did Lacy's vague but ominous explanation to Wall Street analysts that, "I lost confidence in his personal credibility."

Ten days later, Lacy tried to reassure Wall Street that there wasn't worse news to come, but investors bid down Sears stock by $10.80 a share, to $23.15, a 32 percent decline and its biggest one-day drop in decades. Several shareholders filed suit, alleging that Sears had misled them about rising delinquency problems. Keleghan sued Sears for defamation.

Keleghan's dismissal proved to be a tipping point in Lacy's tenure. It sent Sears stock into a tailspin and kicked off an unhappy chain of events that culminated in the sale of Sears' highly profitable credit card division the following year. The sale to Citigroup in November 2003, in turn, laid the groundwork for Kmart's daring takeover offer for Sears almost a year later.

As Sears approaches the one-year anniversary Friday of its merger with Kmart, the Tribune was able to piece together through court documents the behind-the-scenes machinations in the executive suite that shareholders rarely are privy to.

It may not be overreaching to say the decline and fall of Sears as an independent company began with an anonymous letter.

It arrived in mid-August 2002, addressed to Lacy, and alleged that Keleghan had been misleading his boss about the health of the credit card business. Lacy decided not to tell anyone else about the letter, according to his sworn statements in Keleghan's defamation suit. But Lacy did tell his chief financial officer, Paul Liska, "I think we need to pay a little more attention to credit."

Liska turned to Cindy Baier, an ambitious executive who recently had joined the credit unit from the tax department. Liska asked Baier to help him keep an eye on Keleghan and the credit business. It was the kind of opportunity she had been looking for.

Baier had told Keleghan that she "wanted to be the CFO of Sears," and to get there, "I needed to get exposure to the senior management team," according to her deposition in the Keleghan case.

Keleghan did help her, Baier said: "He made arrangements for me to make presentations at Alan's staff meetings. He tried to get exposure for me at Sears and within the business community, and he tried to give me good counsel."

Baier ended up playing a key role in Keleghan's undoing.

As president of Sears Credit, Keleghan was overseeing one of the world's largest retail credit card operations. Sears' portfolio held more than $28 billion in consumer debt and counted 60 million credit card holders as customers.

Credit contributed about 10 percent of Sears' revenue but regularly provided 60 percent to 70 percent of its operating profit. With cards bearing interest rates of 21 percent and higher, credit was a gold mine with double-digit profit margins. By comparison, Sears' vast retail operation had a profit margin of about 3 percent.

Sears was really a finance company with a retail empire attached.

For many middle-class families, the Sears card was the only credit card they had, the only way to pay off a new dishwasher over time or finance a new roof.

Switch to MasterCard

The advent of Visa and MasterCard began to change all that. In 1993, when Sears began accepting Visa and MasterCard, 60 percent of purchases were charged on a Sears card. By 1999, that number had fallen to 48 percent. On top of that, nearly 24 million Sears card accounts had become inactive or no longer carried a balance.

Lacy, who had run the credit business for two years in the late 1990s, saw an opportunity. Hoping to increase outstanding balances and fee income, he hit the accelerator on the rollout of the Sears Gold MasterCard, a card that could be used at Sears as well as other stores.

Unlike the old Sears card, which was free, the Sears MasterCard carried an annual fee. But it also allowed customers to run up much larger balances, as high as $10,000 to $20,000. In contrast, the old Sears cards often carried limits of $250 to $1,000. Sears said it was controlling its risk by offering its MasterCard to longtime customers with high credit scores.

In 2000, Sears sent its Gold MasterCard to 7 million accounts that had not been racking up finance charges on their Sears cards. The next year, the number of accounts ballooned to 19 million. Sears also began marketing Gold MasterCards to consumers who didn't have a Sears card, a segment of the population it knew far less about.

In order to build balances faster, Sears offered "teaser rates" and "convenience checks" that allowed customers to pay bills with their cards. It also encouraged customers to transfer balances from other cards. They did.

By mid-2002, shoppers had amassed an impressive $8.5 billion in Gold MasterCard balances. MasterCard now represented almost 30 percent of Sears' credit portfolio. It was a home run for Sears and Lacy, who frequently would lead his presentations to analysts with a rundown of the spectacular growth in credit.

Delinquencies surge

Yet with rising balances came rising delinquencies. In the credit card business, it's called "seasoning." When people get new credit cards and fresh lines of credit, it takes them a while to fall behind on their payments.

Both delinquencies and credit card fraud were rising at Sears, but no alarms were going off. Maybe they should have been.

"Clearly they misjudged how the behavior of Sears customers with a proprietary credit card would change once they had a general purpose card," said David Robertson, publisher of the Nilson Report, a credit card newsletter in California.

Instead, Sears was enjoying a surge in interest income that allowed the company to deliver a second-quarter earnings surprise. Sears even raised its profit outlook for the year.

Lacy downplayed analysts' concerns about troubles at credit card lender Capital One Financial Corp., which had been forced by regulators to boost its reserves for bad debt because of its significant exposure to "subprime" borrowers. The news had sent Capital One stock tumbling 40 percent. "We're 180 degrees different than Capital One," Lacy said.

But after Lacy received the anonymous letter, his anxiety level increased. He began scheduling additional briefings with Keleghan. The write-offs and delinquency rates in the MasterCard portfolio were in line with projections, Keleghan reported.There had been some fraud with the convenience checks, but those were being reined in.

Liska, however, had a different perspective.There were "problems in credit. Big issues," he told Lacy in a voice mail.

The back-channel loop that Lacy had established with Liska and Baier continued to feed his concerns. Finally, Lacy heard something he thought crossed a line. Liska told Lacy that Keleghan had coached Baier "to be accurate but not necessarily honest" when making presentations about the credit business, a statement Keleghan later denied ever making.

It was Sept. 16, and Lacy later acknowledged under oath that he decided he was likely to fire Keleghan that day. A week later, a second anonymous letter arrived. This time, Lacy told Liska about the letter, but as with the first missive, no formal investigation was launched, and Keleghan wasn't told of the letter or its allegations.

Shoring up bad-debt reserves

Two weeks after Keleghan's exit, Lacy addressed Wall Street analysts and gave them bad news. Sears was adding $222 million to its bad-debt reserves and would fall short of the 22 percent increase in earnings per share the company had recently affirmed. Even though Keleghan's team had nothing to do with calculating the reserve, the connection seemed clear: Lacy was cleaning up Keleghan's mess.

By the end of the year, though, there was no sign of alarm or unease about the state of Sears Credit. In its annual 10-K statement, Sears said its MasterCard initiative "had been successful in building balances in the portfolio." A nearly half-billion-dollar increase in the provision for bad debt was attributed to a difficult economy, the seasoning of the MasterCard portfolio, a bigger portfolio and a surge in bankruptcy filings.

Even with those difficulties, credit contributed $1.5 billion in operating profit during 2002, besting the $1.2 billion profit from the retail business. Factoring out one-time items, Sears' 2002 earnings per share exceeded the 2001 figure by 17 percent, an increase most companies would have been proud of.

The wheels set in motion by Keleghan's defamation lawsuit were not so easily stopped. A long list of Sears executives were called to give depositions. So was Greg Lee, head of human resources at Sears, and several Sears directors, including Michael Miles, Sears' lead director and the former CEO of Kraft General Foods, and Brenda Barnes, now the CEO of Sara Lee Corp.

Expert witnesses were called in by both sides, and, not surprisingly, they offered differing views of the situation.

Gregory Baxter, a human resources expert hired by the Keleghan legal team, concluded that Keleghan was "the victim of three badly bungled decisions by [Sears]: the decision to discharge him, then to claim the discharge was `for cause' and then to broadcast publicly criticism of Mr. Keleghan. In my expert opinion, each of those rash decisions could easily have been avoided with resources [Sears] had at hand and by following its own policies and established practices."

Michelle Bryan, an expert witness brought in by Sears, said Lacy was well within his rights to fire one of his top lieutenants because he had lost confidence in him.

"The only person, in my opinion, that could reach the conclusion that Kevin Keleghan was not providing him, Alan Lacy, with a complete picture was Alan Lacy," Bryan said in a November 2004 deposition. "Because it's not only just what's on paper and the data. It's also about what is Mr. Keleghan saying to him in their one-on-one meetings, what is his demeanor, what are the characterizations he is making, what is he saying, and what is he not saying. And only Alan Lacy can make that assessment."

In April 2005, Sears reached an undisclosed, confidential settlement with Keleghan. Estimates of the size of the settlement vary, but several sources close to Sears put it in the $6 million to $8 million range. Keleghan declined to comment on the settlement, and his attorney did not return calls.

The Keleghan case isn't really over. His termination is expected to be a critical aspect of a class-action suit in federal court here that alleges Lacy, Liska, Keleghan and others misled shareholders about the state of the credit business. The case is scheduled for trial in late October.

Two months after he was fired, Keleghan went to work as a temporary CEO for Outsourcing Solutions Inc., a St. Louis-based company that provides collection services to Fortune 500 firms. Arthur Martinez, the former CEO of Sears, provided Keleghan with a reference. Keleghan has since become OSI's permanent CEO.

Despite Lacy's assurances that Keleghan's dismissal was not a reflection on the health of its credit business, Wall Street remained skittish. Sears' stock continued to languish in the $20s during the spring of 2003, down from a high of almost $60 a share the previous summer.

Then Standard & Poor's, the debt rating agency, dealt Sears another blow. It lowered the rating on Sears debt to BBB+ from A-, citing rising credit card delinquencies. Sears long had prided itself on its "A" credit rating, a top grade that allowed it to borrow money at cheaper rates.

Lacy began to worry that Sears would not be able to refinance the billions of dollars in credit card debt that rolled over every year, according to several sources with knowledge of the situation. At the same time, Liska, who now was running the credit business, was arguing that Sears' credit unit would be worth more to a giant financial company that could borrow more cheaply and run it more efficiently.

One of Lacy's strengths was his ability to question the assumptions underlying a business, say executives who worked with him at other companies. Rather than debating strategies for fixing a particular product line, Lacy would be the one to question whether the firm should be in that business at all.

He was about to show that talent on a large scale. Lacy, the finance guy, decided to put the credit unit up for sale.

It was a move that shocked the Sears organization and created anxiety among those who remembered Montgomery Ward doing the same thing in the late 1980s. Without the profit from its credit card business, which had been sold to GE Capital as part of a 1988 leveraged buyout, Wards sought Chapter 11 protection in 1997 and liquidated in 2001.

In a seven-page letter delivered to employees, Lacy said Sears' situation was different from Wards' because "the financials of Sears' retail business are very healthy, as evidenced by the record profitability generated by the business in 2002."

But much of that profit came from aggressive cost-cutting, not a retail turnaround. In fact, Sears' same-store sales had declined every month that year, sometimes by double digits.

To his closest colleagues, Lacy likened the sale of the credit unit to Spanish conquistador Hernando Cortes burning the boats of his soldiers after they landed in Mexico to prevent all thought of retreat. Without the credit business to rely on, Sears would have to improve its retail operations, Lacy reasoned. What had been a slow decline in the company's fortunes would either turn around or accelerate.

Twenty-six days after S&P lowered the debt rating, Sears put its credit card business up for sale with an asking price of $6 billion to $7 billion. In July, Citigroup agreed to pay $6 billion, a $3 billion premium on top of assuming $3 billion in debt. That worked out to a 10 percent premium on Sears' $30 billion portfolio.

Lacy was relieved to have the credit issue resolved, but some Sears insiders and credit card experts thought he had sold the business for way too little. The shadow of the Keleghan scandal, as well as the S&P downgrade, lent the air of a fire sale to the auction, they said.

That view appeared to be validated by data compiled by California investment banker Robert Hammer, who in 2003 tracked 61 sales of credit card portfolios. The average weighted premium on those sales was 18.6 percent, he said.

And last year Sears Canada sold its credit portfolio for a premium exceeding 20 percent.

Buyback strategy backfires

Sears insiders also were concerned when they heard what Lacy planned to do with the proceeds from the credit sale. Rather than reinvest in the retail business, Lacy said he would use the cash to buy back Sears stock. While competitors such as Target and Wal-Mart continued their aggressive expansion plans, it was an admission that Sears didn't have a retail concept worth investing in.

Lacy's stock repurchase plan was intended to boost the price of Sears shares. But it had another effect as well. It increased the percentage of Sears held by a hedge fund operator named Edward Lampert, who had become the controlling shareholder in Kmart Holding Corp.

Lampert wasn't selling his Sears stock, so as the number of outstanding shares decreased, his stake got bigger--and it was already large. Lampert's ESL Investments held an 8.9 percent stake in Sears at the end of 2002, which rose to 13.5 percent by the end of 2003.

Lampert looked like a genius. Kmart's stock had quintupled, from $15 a share when it went public in May 2003 to $75 a share 14 months later when Lacy and Sears made a move that propelled Kmart's stock higher. He agreed in June 2004 to buy up to 54 Kmart stores for $621 million, a first-rate price that investors applied to Kmart's legion of remaining stores.

Suddenly the idea caught fire that retailers could be worth more for the liquidation value of their real estate than they were as going concerns. Kmart's stock continued its lofty ascent, rising to more than $100 a share by Nov. 11, 2004.

Six days later, Kmart launched its takeover of Sears.

Copyright © 2006, Chicago Tribune

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From: Green Receipt5/29/2006 1:51:15 PM
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Hi All,

I went to our local KMart store yesterday and noticed a dramatic improvement. They had sale items in stock and had improved the layout of the store. Plus the employees seemed more helpful.

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From: Glenn Petersen8/18/2006 7:54:28 AM
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Sears shopping around

Earnings surge 83%, but shares take a hit

By Sandra Jones
Tribune staff reporter
Published August 18, 2006

Owning stock in Sears Holdings Corp. just got riskier.

Billionaire investor Edward Lampert, the taciturn hedge fund manager who engineered the combination of Sears and Kmart last year, made it clear in Sears' second-quarter earnings report Thursday that he plans to put his investment acumen to work and suggested he could look outside the retail industry for deals.

That's good news for investors who don't have access to the Greenwich, Conn.-based magnate's elite hedge fund but are eager to benefit from his moneymaking skills. But it also means more risk.

Sears shares dropped $8.71, or 5.8 percent, to $141.29 in heavy trading, the biggest decline in more than a year, as investors worried about how the company is going to spend its $3.7 billion in cash. The stock fell even as the Hoffman Estates-based retailer's second-quarter profit jumped 83 percent on cost cuts and a slower decline in sales.

"You could think of it as a publicly traded private equity fund," said Arun Daniel, analyst at ING Investment Management, a New York firm that holds about 500,000 Sears shares. "You're not going in there for the fundamental improvement in business. You're looking at it as the KKR of retail."

Kohlberg Kravis Roberts, the buyout firm made famous in the 1980s book "Barbarians at the Gate," buys and sells undervalued companies.

Ever since Kmart Holding Corp. of Michigan purchased Sears, Roebuck and Co. in March 2005 for $12.3 billion, Wall Street has debated over whether to view the company as a retailer or an investment company.

Sears' shift toward investments has already begun. The company ratcheted back its longstanding aggressive buyback program, a strategy many investors viewed as a safe way to boost the stock. Sears repurchased 700,000 shares for $91 million in the quarter, far less than the $1.1 billion in shares bought back since the merger and a small slice of the $406 million remaining in the program.

Likewise, the company disclosed that it is using a portion of its cash to invest in derivatives, financial instruments that are often thinly traded, sometimes speculative and, while frequently used to control risk, are also famous for blowing up.

"They're not limiting themselves to retail-related investments, and that makes it unusual and something we would have to watch," said Philip Zahn, a Chicago-based analyst for Fitch Ratings, the New York-based credit rating firm. "The fact that they're bringing it up suggests they have some ideas of what to do with the money."

Credit Suisse analyst Gary Balter, who rates Sears an "outperform," wrote after the announcement that Sears is beginning a "new chapter" and added that the high-risk stock is "clearly not for many investors." He speculates that Sears could buy suppliers, real estate or unrelated companies.

Lampert has so far kept investors happy by posting steady profit improvements, but even that strategy appears to be running out of steam. In the most recent quarter, cost cuts barely kept up with the drop in sales.

Sales and administrative expenses as a percent of sales remained relatively unchanged at 22.1 percent in the quarter compared with 22.8 percent in the year-ago quarter.

Sears has suffered from five consecutive years of declining sales. Sales at all Sears Holdings' stores open at least one year, a key barometer of a retailer's health, fell 3.8 percent. The firm blamed "increased competition and lower transaction volumes" for the decline.

Same-store sales at Sears stores fell 6.3 percent, with declines across most categories and the biggest drops in home fashion and lawn and garden, the company said. At Kmart, same-store sales declined 0.6 percent as declines in home goods offset gains in apparel, pharmacy and food.

Sears and Kmart are under siege on several fronts from Home Depot Inc. and Lowe's Cos. in appliances, J.C. Penney Co. and Kohl's Corp. in apparel and home goods, and Wal-Mart Stores Inc. and Target Corp. in general merchandise.

Net income increased to $294 million, or $1.88 a share, from $161 million, or 98 cents, in the year-ago quarter as the retailer cut expenses and got a boost from proceeds related to the settlement of credit card antitrust litigation.

Excluding gains and charges, net income rose 45 percent to $272 million, or $1.74 per share. Revenue fell to $12.8 billion from $13.2 billion a year ago.


Copyright © 2006, Chicago Tribune

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From: Brumar894/17/2007 11:53:01 PM
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Sears Holdings (SHLD) Securitizes Main Brands

Eddie Lampert, Chairman of Sears Holdings has created $1.8 billion worth of securities based on the brand names Kenmore, Craftsman, and DieHard. What that means is he essentially transferred ownership of the brands to another entity, which it then pays for the right to use the brands. The deal, carried off last May, was the biggest "securitization" of intellectual property in history, according to Eric Hedman, an analyst at Standard & Poor's. The story hasn't gotten out until now because the bonds haven't actually changed hands, Sears is holding them in its Bermuda-based insurance subsidiary and because Sears has never disclosed them, nor has it had to do so. That would change if Sears were to decide to sell them to outside investors and collect the cash.

How does It work?
Sears has disclosed that it has created a "separate, wholly owned, bankruptcy-remote subsidiary". This is essentially a company within a company. It is called KCD IP (for Kenmore Craftsman DieHard intellectual property) and it has issued $1.8 billion worth of bonds backed by the intellectual property of Sears' three biggest brands, according to filings with the Patent & Trademark Office.

Sears has in effect now created licensing income from it's most known brands. First it transferred ownership of the brand names into KCD. Now, KCD charges Sears royalty fees to license those brands and uses the royalties to pay the interest on the bonds. It has sold the bonds to the insurance subsidiary, where, like any other security on an insurer's books, it serves as protection against future loss. The insurer, meanwhile, protects Sears from financial trouble and because it's a subsidiary of Sears, it does so at a lower cost than they could get from an outside party. Essentially, the deal at its current level allows SHLD to save money on insurance.

The question you are most likely asking is: Who is making money off the transaction? The answer? As it is set up, nobody. The payments net out to zero because Sears owns every piece.

Why Do It Then?
It seems like a whole lot of work to do for no profit. Why do it and how then can Sears turn these bonds into money?

1- Sell the bonds to outsiders. Then, Sears would be holding up to $1.8 billion in cash, and investors would be holding the bonds.

2- License the brands: Many people (me included) feel there is a huge revenue stream for Sears in the value of these brands. Allowing outside manufacturers to make products and use the Craftsman, Kenmore and Diehard brand names in return for royalty payments is an easy way to increase profits without any additional expense. These payments would be virtually 100% profit for Sears. More importantly, by licensing these brands they would be expanding the availability of them. I feel that especially with the Craftsman tool line, this could really have a compounding effect. Tool buyers are a brand conscious lot. If their favorite brand came out with a Craftsman line, given Craftsman's reputation for quality, it would sell.

3- Swap bonds for debt. Lampert acquired K Mart through its debt. These new "brand" bonds allow him a vehicle to do a similar deal. How? Lampert could swap these bonds or a portion of them for the debt of another company. One morning shareholders of BJ's could wake up and find that Sears Holdings owns all their debt. The beauty of this scenario is that it would require none of the cash Sears has in the bank ($4 billion) to be used. Having these bonds as leverage also allows for the possibility of a much larger acquisition.

4- Insurance. In the past I have speculated on the possibility of Sears getting into the insurance business. Now we have an insurance subsidiary of Sears sitting there holding $1.8 billion in bonds that could be used for an acquisition. As I stated in the past, I think there are few acquisitions that would make the stock price of SHLD explode to the upside than the purchasing of an insurer.

The creation of these bonds opens up a plethora of situations in which they can be used to add value to Sears Holdings for shareholders.

At the end of the day, what Lampert will do with this is a mystery. It is great fun for us to speculate though. If we do it enough, eventually one of us are going to be correct. What I do know is that given his past track record, we shareholders will benefit greatly.

Things are getting exciting here.

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From: Brumar895/14/2007 8:48:43 PM
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Land's End: Expand It, Don't Sell It

There was a blog post out there this past week that said Sears Holdings (SHLD) should spin off it's Land's End line in order to create value for shareholders. It was a well written and thought out piece and I could not disagree with it's author more. I cannot find where I read it but if the author reads this and wants, they can drop me a line and I will link to it. Here are the reasons for my disagreement:

The future of Sears retail:
In February I wrote, "I am rapidly becoming convinced that the future of Sears Holdings retail clothing operations will be predominantly Land's End merchandise." This thought was further bolstered when in his annual shareholder letter, CEO Eddie Lampert said that the Land's Ends division had a record year in 2006 for both sales and profits. If this was not enough to convince people, at the annual meeting last week, Lampert said that the Land's end "store in a store" concept was being expanded from 100 to 200 locations in 2007. If you have not been to one of these yet, go (here me Maggie?). The layout is enticing, the merchandise is wonderful and the pricing is good. In short, there isn't anything not to like and based on this years results, I am not the only one who thinks this way. As these locations expand, watch as the retail metrics for Sears improve at an increasing rate. There has been some concern out there that the stores would just cannibalize the online operations. Results to date have proved just the opposite. People seem to be more willing to buy online if they are able to return merchandise to a store for an exchange rather than going through the annoying mail return procedure.

Selling Land's End now would actually destroy long term shareholder value. Each of these locations, as they open increases the value of the retail operations. It would no doubt give us a short term boost, but it would come at a far too heavy long term price.

Brand Value
Recently Lampert created $1.8 billion dollars essentially out of thin air. What he did was to create a bond out of the Craftsman, Kenmore and DieHard brands. He found a way to quantify the value of these brands. As Land's End becomes more prevalent and profitable for him, he can do the same for it. I have come to realize that Lampert is smarter than most people out there and sees things that most do not. If you look at it, he has created billions of dollars in shareholder value from two names, Kmart and Sears, both of whom were left for dead by the investing world. Land's End will eventually have a value to him as a brand that is far in excess of the simple annual sales and profits from the division. Rather than selling this increasingly valuable asset, I would love to see it's expansion grow at a faster pace. Lampert, however, is a far more patient and wealthier person than I so I will defer to him on it's pace (that and the fact he has yet to ask my advice). Now, how much value could it have? It is hard to tell since Sears does not breakout individual results in their 10K, making quantifying it guesswork. My opinion is that since Lampert has repeatedly given Land's End the lions share of credit for margins improving from 24% in 2004, to 27% in 2005 to almost 29% in 2006, its value is substantial and will continue to increase as more locations open.

Future Investments :
Now that Lampert has said he will begin to "look for investments" for Sears Holdings, between the cash on he has on hand and the value of the bonds he created he is sitting on almost $6 billion and multiples of that in borrowing power. The guessing games will begin. If Lampert's, recent activity within Sears is any indication of his plans, any acquisition will have "Brand Appeal". What is Dr. Phil's saying? "The most accurate predictor of future behavior is past behavior". He is the first retailer out there to quantify the value of a brand name in addition to it's immediate effect on the profit and loss column. Expect the acquisition(s) to be of strong, respected brand names as for Lampert, it provides him value few seem to be easily able to see..

Posted by Todd Sullivan at 7:09 AM

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From: Brumar896/10/2007 10:56:49 PM
   of 951
Lampert Buying More Sears (SHLD) Shares

So you want to buy shares in Sear Holdings (SHLD) but aren't sure if this is a good price level? Apparently Eddie Lampert feels the current price is just fine. Between May 5 and May 25 the share count was reduced from 153.7 million and 152,492,175 shares according to today's 10Q. That means Lampert bought back 1.2 million shares at prices ranging from ranged from $175 to $182. This is the first meaningful repurchase of shares in 6 months as in the most recent quarter Sears bought back no stock and in the quarter before that it repurchased only 82,000 shares.

Accordig to Jim Cramer: "That means the lowest price Sears could have paid was $175, the highest price $182.52. Again, while we don't know the average price paid for those 1.2 million shares, we do know that it is higher than the $164.91 paid in the fourth quarter. That's very important. Sears has a ton of cash, more than $3 billion. At this pace, if Eddie miraculously paid the low for all of that stock, he would go through the part of the $600 million buyback authorization that remained as of the press release in about 60 days. When that's gone, I believe he will authorize another one."

I said on Wednesday that no matter what happened after yesterday's earnings release I was not going to sell shares, good thing, I would have been selling more stock to Lampert. Lesson learned..

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From: Glenn Petersen11/28/2007 2:17:02 PM
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The state of Edward Lampert's world per the Chicago Tribune:

Lampert swings, misses

By Sandra M. Jones, Tribune staff reporter Tribune staff reporter James P. Miller contributed to this report

November 28, 2007

For more than two years, investors have been waiting for Sears Holdings Corp. Chairman Edward Lampert to unveil a blockbuster deal.

It finally happened. Sort of. And the response on Wall Street was underwhelming.

Sears is in the midst of a takeover battle for Restoration Hardware Inc., a money-losing, upmarket home-goods chain with a retro flair, whose wares span a $12 doorknob, $40 Turkish bath towel, $159 handmade birch sled and $4,000 leather love seat -- not exactly the merchandise shoppers expect to find at Sears.

Restoration has demonstrated little enthusiasm for Lampert's overtures, already having worked out an agreement to sell itself to an investment group that includes Restoration's chief executive. Investors are equally indifferent.

"I can't get excited about this, and I can't get upset about it either," said Scott Rothbort, president of LakeView Asset Management, a Millburn, N.J.-based shareholder in Sears.

Morgan Stanley analyst Gregory Melich put it more bluntly in a report, noting it is "not the transformational deal some have been hoping for."

Anticipation has been growing on Wall Street ever since Lampert engineered the combination of Sears and Kmart in 2005 that the top-ranked hedge-fund manager would make a big play for another retailer. Stocks at Gap Inc., Home Depot Inc. and Anheuser-Busch Cos. all surged at some point on speculation that Lampert was making a move for them.

Luster disappearing

In spite of Lampert's declarations that he sees himself as a retailer, investors focused instead on the billionaire's reputation as an investment mastermind, building what came to be known as a "Lampert premium" into the stock.

Shares topped $190 in April. On Monday, the stock hit $107.55, far below the $131 closing price on its first day of trading as a new company. Shares closed Tuesday at $111.56, down 2.3 percent since the proposed Restoration deal was quietly disclosed in a filing with the Securities and Exchange Commission on Nov. 19.

With Lampert's luster fading, Sears' long-standing troubles are being exposed. The initial profit improvement under Lampert, thanks to cost cuts and gains on investments, has run out of gas. Sales have been falling for years. And the combination of rising gas prices, tighter credit and falling home-equity values is taking its toll on just about all retailers. Sears is scheduled to report third-quarter results Thursday.

Sears officials declined to comment beyond the SEC filings, leaving investors to scratch their heads over what Lampert is doing.

Analyst sees a 'portfolio play'

Some of the guesses making their way around Wall Street: Sears could be looking for a brand to replace Martha Stewart Everyday once the licensing agreement expires in 2009. Or the company could be angling to replicate the Lands' End acquisition of 2002 by looking to expand the Restoration chain into the more than 800 Sears department stores.

Or this could simply be Lampert investing in an undervalued company that could benefit from cost cutting and signal the kinds of smaller deals he plans to make to build Sears into a true holding company.

"I think it's a portfolio play," said Don Delzell, an independent retail research analyst and chief executive of Future Merchants, a New York-based e-commerce start-up. "The big monster deals just aren't out there right now." Gimme Credit analyst Carol Levenson said the roughly $270 million Sears is offering for the retailer would be better spent on fixing up its own stores.

With $713 million in sales last year and about 100 stores, most of them leased, Restoration would be a blip in Sears' approximately $50 billion, 3,800-store operation. But Lampert has been after the company since at least June, according to filings with the SEC, and he has proven to be a tenacious suitor.

On Tuesday, Restoration held out an olive branch to Sears, saying it would be "pleased" to provide Sears with the non-public financial data Sears is seeking, after initially denying the Hoffman Estates-based company access to the information.

Sears, which has taken a 13.7 percent stake in the home-furnishings chain, complained in a regulatory filing that Restoration had been rebuffing its efforts to conduct an in-depth review of the company's books.

That filing made public a letter sent Friday by Sears to Restoration's board, in which Sears appeared to suggest Restoration wasn't being receptive to its efforts to buy the company because Restoration is focusing on a $6.70-a-share, $267 million buyout offer it recently accepted from a private-equity group. Sears offered $6.75 a share.

Once a highflying Wall Street favorite, with a stock price that briefly traded in the mid-$30s, Restoration has been out of favor for the past several years, and the collapse of the U.S. residential construction market only has added to the Corte Madera, Calif.-based company's difficulties. Its stock closed Tuesday at $7.01, off 6 cents.

Restoration officials declined to comment Tuesday.


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From: Glenn Petersen12/15/2007 10:32:39 PM
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Hold the Tears for Eddie Lampert

His big bet on Sears looks dicier as profits plunge, but the chairman has a built-in safety net

December 13, 2007, 5:00PM EST text size: TT

By Robert Berner

When Sears Holdings (SHLD) posted a 99% drop in profits last quarter and the stock sank 11% in one day, ESL Investments took another beating. The hedge fund, run by Sears Chairman Edward S. Lampert, owns 45% of the retailer, whose stock has fallen to 111 from a peak of 195 earlier this year. Given its other laggard holdings, such as Citigroup (C) and Home Depot (HD), ESL is on track for losses of 20% to 30%, the worst in its 20 years, according to estimates from one ESL investor.

But don't jump to conclusions. Lampert's well-heeled ESL investors stuck with him through the other dark periods, 1990 and 2002, getting richly rewarded in later years. It can take a while for Lampert's highly concentrated bets to work out, and a five-year lockup period makes it hard for fickle investors to sell. Lampert declined to comment.

Meanwhile, Lampert has cut expenses drastically since he used his controlling stake in Kmart to buy Sears Roebuck in 2005. So the combined company has a hefty pile of cash, which may buy management time to figure out how to fix Sears and survive an extended industry downturn.

Even if the turnaround doesn't pan out, he still can sell the chain's real estate for a tidy profit. "Lampert has far more financial flexibility [than do other retailers]," says Deutsche Bank (DB) analyst Bill Dreher. "He should be appreciated for being so prudent."

Like many retailers, Sears has struggled to attract shoppers in an overcrowded sector and a slumping economy. But compared with other mid-market chains, Sears is in a stronger financial position, giving it more breathing room during these lean times. The company has $1.5 billion in cash, more than J.C. Penney (JCP), Kohl's (KSS), and Macy's (M)—its biggest rivals—combined. Lampert also has been paying down Sears' debt in recent years. As a result, its debt load is only 25% of the total capital on its balance sheet, compared with 46% for Penney's and 53% for Macy's. "There's wisdom in holding back in uncertain times, being cash-rich when your competitors are not," says Charles W. Mulford, an accounting professor at Georgia Institute of Technology, who recently studied retailers' cash flow.

For now, Lampert remains committed to Sears. The value investor, who is not shy about dumping assets if he thinks the money could be more productive elsewhere, has sold few Sears locations since coming on board. He also has been buying back shares aggressively. In the third quarter he spent nearly $1 billion on repurchases, a sign that he thinks the stock is a good deal. He's not the only one. Activist investor William Ackman of Pershing Square Capital Management bought a 3.5% stake in the third quarter, while Steven Munchin, a Sears board member and Lampert's roommate at Yale, picked up 75,000 shares.

The question, though, remains whether Lampert can fix the troubled retailer. Its recent results were especially ominous: the third straight quarter of deteriorating profit margins and sales at stores that have been open more than a year. And after months of slashing headcount and expenses, there's nothing left to cut. Some analysts say Lampert has grossly underspent on store improvements, contributing to the poor results.

Mostly, Lampert has to find the right retail formula. In November, Sears launched a bid to buy Restoration Hardware (RSTO), the home-goods purveyor, which is facing sluggish sales as well. If that deal works out, Sears could decide to create an upscale boutique within stores. It did the same, somewhat successfully, with the once catalog-only brand, Lands' End, says Credit Suisse (CS) analyst Gary Balter.

And if the situation at Sears sours too much, Lampert can always sell off his prized properties. The problems in real estate haven't spilled over much into retail. The reason: supply. Fewer malls are being built, and it's hard to find space for big-box stores in metro areas. That makes Sears' assets attractive to players like Target (TGT). Sears owns 518 of its 816 locations outright, and many of the 1,333 Kmarts are located in strip malls close to big cities. So Lampert can get some juice out of Sears even if the turnaround doesn't materialize.

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