Eddie Lampert’s Annual Letter: Key Points

Eddie Lampert

“Messer Hubbard and Bell want to install one of their “telephone devices” in every city. The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?” 

Excerpt from a Western Union internal report in response to an offer from Alexander Graham Bell (inventor of the telephone) to sell his invention to Western Union to $100,000

I have tremendous respect for Eddie Lampert as an investor—an incredible track record for sure (one of the best ever)—but also the way he handles his business in the face of significant criticism. I like following Sears Holdings Corp (NASDAQ:SHLD)—like many investors, the assets pique my interest.

Sears Transformation

Eddie Lampert has been pounding the table on how he believes Sears is ahead of the curve when it comes to the tectonic shift taking place in the brick and mortar retail business model. Basically, Eddie Lampert claims that Sears is making headway in their “transformation” from a traditional retail store to an “integrated” retailer that interacts and serves customers through online channels, social media, and also in the physical stores.

Late last week, Sears posted Lampert’s annual letter to shareholders, where he again cites data that he feels provides further evidence that Sears is making progress on this transformation front, despite the ever present operating losses.

I’m not sure about the efficacy of this type of business strategy, and like many value investors, I’m much more interested in the assets. But one thing I think too many people are doing is closing their minds to this story, and following the consensus view that Sears is dead. Now, I have an ironic opinion on general consensus views—the popular belief is that the consensus is usually wrong… that’s actually not true. It is my observation that more often than not, the majority is actually right. So it’s important to keep that in mind. I don’t necessarily disagree with the naysayers regarding the future of Sears’ retail operations. It looks bleak to me as well, and they have a significant mountain to climb to reach consistent profitability.

But I think many have closed their minds on the future prospects of Sears as a retailer. The assets have been discussed ad nauseam to be sure, but I think Lampert has some interesting viewpoints, and given the investor’s record, I think it doesn’t hurt to try to reverse engineer his logic.

As an aside, I read through the press release that contained Sears’ year end results, and noticed that Lands’ End (which is the next asset that Lampert plans to spin off later this year) increased its profitability from the previous year, earning $79 million in profits:

For those who are interested in learning more about how Eddie Lampert thinks as an investor and a businessman, I would really recommend the shareholder letters. Lampert rarely makes public appearances, so there won’t be many other places to get his views on investing, but he does actually write a blog. He rarely posts, but he has a couple interesting comments there, and the quote at the top of this post came from an interesting piece he linked to.

For those interested in Sears, or just gaining more insight into how Lampert thinks as an investor, capital allocator, and chief executive, here are some other links to check out:

Via Base Hit Investing


About the Author

John Huber
John Huber is the author of Base Hit Investing, a blog about value investing concepts and ideas. He also is the founder and portfolio manager at Saber Capital Management, LLC, a Registered Investment Advisor that manages equity portfolios for clients using the value investment principles of Ben Graham, Warren Buffett, Walter Schloss, and Joel Greenblatt.