| Eddie Lampert, ESL Investments (Bloomberg) |
This year is turning into yet another nightmare for Eddie Lampert — and it is once again mostly because of his career-defining bet on Hoffman Estates, Illinois-based Sears Holdings.
Lampert, 54, is the founder of ESL Investments and a one-time Goldman Sachs risk arbitrageur who was once called the next Warren Buffett by BusinessWeek. But the once-gilded investor has since tarnished his reputation, and lost plenty of money for his investors and himself, by clinging to an ill-advised, poorly executed, outsize commitment to a troubled retailer.
Every quarter since he merged two has-been retailers — Sears and Kmart — in 2005, sales have declined and store traffic has been so sparse that the stores could double as places to hide people in the witness protection program. The company’s latest woes came to light on Monday, when Reuters reported that Kmart planned to close another 64 stores on top of the 68 the parent company said it would shutter earlier this year.
This news came several days after Moody’s downgraded Sears Holdings Corp.’s speculative-grade liquidity rating because it thinks Sears will continue to “rely on external financing and the monetization of its alternative assets to fund its operating losses.” A spokesperson for Lampert did not return a call in time for publication.
Said Moody’s vice president Christina Boni in a press release: “We recognize the risks associated with relying on these sources and continued shareholder support to finance its negative operating cash flow,” which the credit rating agency estimates at $1.5 billion this year.
In fact, on several occasions in recent years, Lampert’s hedge fund has extended personal loans to Sears. Most recently, in its second-quarter report, Sears disclosed that ESL agreed to provide $300 million of additional debt financing secured by a junior lien against inventory, receivables and other working capital.
As a result of all of this news, Sears’s stock sank more than 3 percent on Tuesday, closing near its lowest price ever, $11.39. The stock is now down about 45 percent in the calendar year alone.
This sets up another horrendous year for the few remaining investors in ESL Investments. At the end of June, the hedge fund firm’s Sears stake was worth about $320 million, or nearly one-third of ESL’s $1 billion U.S. stock portfolio.
In the past, the Sears losses were partially offset by gains from other stocks in ESL’s very small, concentrated U.S. stock portfolio. But not this year.
The shares of auto retailing giant AutoNation — which until recently was a huge winner for Lampert — are down nearly 20 percent this year. ESL’s stake accounted for nearly 30 percent of the U.S. stock portfolio.
Lands’ End, the clothing spinoff of Sears and ESL’s third-largest position, fell nearly 3 percent on Tuesday and is down more than 23 percent for the year. On Monday, Moody’s downgraded its senior secured term loan, noting it “reflects Moody’s expectation that credit metrics will remain outside the parameters” of the credit rating agency’s rating “as the company works to reverse recent operating trends in a challenging retail environment.”
The Gap, which accounts for nearly 10 percent of ESL’s assets, is down about 8.5 percent for the year, including down 2.55 percent on Tuesday. These losses were offset somewhat by ESL’s small stake in IBM, which is up about 12 percent for the year. Add it all up and ESL’s U.S. stock portfolio is down somewhere roughly in the mid-30 percent range.
Another Buffett? More like Wall Street’s version of Sears.
