Edward Lampert continues to pare his holdings in his shrinking equity portfolio.
In a regulatory filing Tuesday, both Lampert and ESL Investments, his Bay Harbor Islands, Florida, hedge fund firm, said they reduced their stakes in AutoNation, the largest auto retailer in the U.S., to roughly 12 million and 7.45 million shares, respectively.
This reduced their combined stake in the company to 17.1 percent.
Lampert, who runs a very concentrated portfolio, has been distributing these shares and those of Sears Holdings Corp., Lands’ End, and Sears Hometown and Outlet Stores for several years from a liquidating partnership.
The only difference: AutoNation may be Lampert’s most successful investment in years.
Although shares of the other three companies surged on Tuesday, they remain deep in the red for the year.
As a result, Alpha estimates ESL Partners, ESL Investments’ main hedge fund, is down about 14 percent for the year, making it one of 2015’s worst-performing hedge funds.
Shares of AutoNation — Lampert sat on its board nearly ten years ago — are up more than 5 percent for the year and have more than tripled over the past five years.
At the end of the first quarter, AutoNation accounted for only 25 percent of ESL Investments’ roughly $2.2 billion U.S. equity portfolio.
The firm’s signature stake in Sears Holdings, however, is another matter. The stock has been very volatile since Lampert took control of the venerable retailer and its Kmart chain more than a decade ago. Some calendar years he has seen big gains, but the stock is down more than 80 percent from its 2007 all-time high of nearly $180.
The stock surged 2 percent Tuesday but is still down 12 percent this year.
The stock currently accounts for nearly half of ESL’s equity assets, which is down from about 60 percent just a few years ago.
The company is trying to monetize its large real estate holdings. Last week Seritage Growth Properties launched a rights offering that will allow Sears shareholders to purchase more than 53 million shares.
This is the real estate investment trust (REIT) Sears created that will use much of the proceeds to acquire 235 Sears and Kmart stores and Sears Holdings’ 50 percent interests in joint ventures with Simon Property Group, General Growth Properties and the Macerich Co., which combined hold another 31 properties. Seritage will then lease most of the properties to Sears.
Previously spun-off companies from Sears are also struggling, including Lands’ End, which once seemed like the company’s crown jewel.
Sears spun off Lands’ End in April 2014. The company shares are trading at $24.65 after rising 2.5 percent on Tuesday. This is down more than 50 percent from the high of about $55 earlier this year, before the apparel company delivered disappointing forecasts, blaming a reduction in the number of Lands’ End shops at Sears stores, a decrease in same-store sales and factors resulting from its arrangement with Sears Holdings as part of the spin-off.
The stock has a market capitalization of $788 million, less than half the $1.9 billion Sears paid to acquire the company in 2002.
Lands’ End now accounts for 12 percent of ESL’s stock portfolio.
Sears Hometown and Outlet Stores, which Sears spun off in October 2012, currently trades below $10 despite rising more than 4 percent Tuesday. However, it is still down 25 percent for the year and about 80 percent off its all-time high of $56.65 two years ago.
And ESL’s stake in Sears Canada — about 10 percent of assets — is down more than 25 percent for the year.
In 2006, ESL managed $15 billion in assets, making it the fifth-largest hedge fund firm in the world. That was only a few years after Lampert, the New York native and former Goldman Sachs risk arbitrageur, merged Sears with Kmart and three years after BusinessWeek wondered on its cover whether Lampert was the next Warren Buffett.
As of December 31, 2014, ESL Partners — including investments through ESL Ltd. — and certain special-purpose liquidating entities held by former investors of ESL Partners and ESL Ltd., held about $3.7 billion in assets, according to a recent regulatory filing.
