Sears Holdings Chairman Edward Lampert releases 15-page letter to shareholders

Quarterly profit down 55% percent; analysts say annual piece is short on details to turn around retailer

Most annual letters to shareholders are dry and perfunctory. A few, like those from investment oracle Warren Buffett, are revered for their wisdom. And then there are the writings of Edward Lampert, the one-of-kind chairman of Sears Holdings Corp.

Sears' business has been in trouble for years, and investors are eager to know how Lampert plans to fix it. In his 15-page letter released Thursday, he has plenty to say but sheds little light on Sears' strategy.

The hedge fund manager with the Goldman Sachs pedigree expounds for 8,500 words (about the length of a New Yorker article) on topics as far-flung as the government's missteps trying to contain the financial meltdown, short-selling rules, civil liberties, the writings of free-market Austrian economist Friedrich Hayek and the notion, repeated in past letters, that the credit rating agencies are unfairly rating Sears' debt junk.

"As for enlightening investors with specifics about his merchandising strategy and fiscal 2009 outlook, we guess he ran out of room," Carol Levenson, co-founder of Chicago-based Gimme Credit, said in a report.

Lampert, the majority shareholder and chairman of Sears, has no investor relations department and rarely speaks publicly, making his yearly letter a rare opportunity for investors to get a glimpse into his thinking.

Among the quirkier sections of Lampert's 15-page letter is a call for job candidates with turnaround experience.

"We encourage those who think they are up to the challenge to reach out to us to discuss opportunities at Sears Holdings," he wrote. Sears has been has been looking for a permanent chief executive to run the retail giant for more than a year. W. Bruce Johnson, a Kmart executive, has been interim CEO since Aylwin Lewis left in January 2008.

Lampert's reputation as a hands-on chairman has raised doubts as to how much freedom a CEO would have in attempting to turn around the ailing retail chain.

Lampert also said Sears has "begun exploring alternative ways to create value" from the Kenmore appliance, Craftsman tools and DieHard battery brands. In last year's letter, he raised the possibility of selling Sears' exclusive brands to other retail outlets.

The best shareholder letters—like those from Buffett or investor Martin Whitman—attract big followings because they are transparent, easy to understand and provide insight into what is working and not working at their firm, said Karen Dolan, director of fund analysis at Morningstar Inc. in Chicago.

"Not only do you not have to be a financial whiz to understand it, those that are successful are straightforward and honest and give information about what they're going to accomplish," said Dolan.

Morningstar equities strategist Paul Larson lauds Lampert's letter for "an above average frankness."

But, Credit Suisse analyst Gary Balter advises reading Lampert's letter only "if one wants to read an interesting analysis of the financial problems that the previous administration created and that continue to impact the world economy."

If it is "a well positioned retailer that we believe will be a winner on the other side of this recovery," look elsewhere, Balter said in a Thursday report.

Lampert's letter came as Sears announced that fiscal fourth-quarter profit fell 55 percent on weak holiday sales and a write-down of the value of its Orchard Supply Hardware unit.

Net income for the three months ended Jan. 31 was $190 million, or $1.55 a share, down from $426 million, or $3.17, a year earlier, the company said. Excluding charges for Orchard and other items, Sears earned $360 million, or $2.94 a share.

Revenue declined 12 percent, to $13.3 billion. Sales at stores open at least one year, a key measure of retail health, fell 8.3 percent in the quarter. Same-store sales fell 11 percent at Sears stores and dropped 5 percent at Kmart.

Sears also said it plans to close 24 stores in addition to the eight already announced.

Source chicagotribune.com/business/chi-fri-sears-lampert-letter-feb27,0,3146067.story

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