Clearly, an article published in a late August Barron’s has struck a nerve with Sears Holdings (NASDAQ: SHLD) Chairman and ESL Investments founder Edward Lampert. In the Barron’s article Mr. Lampert’s firm, which owns over 40% of SHLD, was accused of various injustices and missteps in its handling of the holding company. Lampert responded a couple of weeks later in a letter to the editor published in Barron’s to refute these claims.
In the letter, Mr. Lampert admits the performance of Sears isn’t ideal. Relatively, however, the firm posted Earnings before interest, tax, depreciation and amortization (EBITDA) of 9% over the first half of 2008, whereas other retailers posted negative earnings under the same measure. Through August 21, 2009, SHLD’s performance was up 70%, outperforming the company’s largest competitors.
Several issues were refuted by Mr. Lampert in the article. He defended the firm’s practice of using EBITDA, which some argue is a way of concealing poor earnings, by claiming it is a good measure of operating performance. By disclosing special charges, Lampert believes analysts and investors are free to make their own decisions regarding charges that could lower earnings. Regarding SHLD’s cash flow impact of closing stores, Mr. Lampert remains steadfast in his belief that store closings will generate cash rather than bleed the company from closing charges. He also defends the company’s practice of cost cutting, claiming it is a long term strategy that will contribute to future profitable growth.
Of significant concern to Mr. Lampert is the author’s questioning of his conflict of interest as Chairman of Sears and founder of 40% owner ESL Investments. In the letter, Lampert highlights his long-term commitment to the company and refutes the claim that his firm portfolio is predominately invested in SHLD. Furthermore, he calls for greater accuracy and fairness in future articles. Until a clear transformation at SHLD is observed by shareholders and analysts, says Lampert, he believes criticism of his firm’s interest at Sears will continue. |
