In this segment from the MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker take the pulse of the retail industry so far this holiday shopping season and pronounce it moderately healthy. People are shopping more, and feeling economically reasonable, and both brick-and-mortar and e-commerce are benefiting. However, it'll take more than a good fourth quarter to get Sears Holdings (SHLDQ) out of its hole -- in the last one, it lost north of $500 million. And the wildest thing about that number? Wall Street liked it.
A full transcript follows the video.
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This video was recorded on Nov. 30, 2017.
Chris Hill: Let's talk about retail, because Cyber Monday, Black Friday, those are in the rearview mirror. It seems, I don't want to jinx us, but it seems like things are shaping up pretty well for the retail industry. Or am I being overly optimistic?
Ron Gross: No, I think that's fair. You didn't say amazing, or that things are going to be gangbusters. I think things are shaping up relatively well. Of course, when we're here back sometime in January, we will revisit and see whether or not we were right. Coming off Black Friday and Cyber Monday, things were clearly strong. Even the department stores fared well. Some of the funnier metrics were things like traffic was down less than it usually is, which I guess is positive. But for sure, online sales continue to be the story, with Amazon really picking up about half of Cyber Monday's sales, which is an amazing metric.
But in general, people are shopping more, people are feeling relatively good from an economic standpoint. And as we mentioned, the high stock market certainly doesn't hurt. Relatively strong GDP doesn't hurt; relatively low unemployment is good. So that bodes well for a good holiday season. Holiday retail sales are expected to be up somewhere around 3.5%-4%. We'll see if that holds true. Again, the online retailers will be the beneficiary of most of that growth. But when you blend in online and brick-and-mortar, you should see something that looks relatively healthy.
Hill: You mentioned the traffic being not quite as low as expected, which brings us very nicely to Sears. Sears' third-quarter loss was north of $550 million, and yet somehow, inexplicably, shares are up 4%-5%, because last year's third-quarter loss was $750 million.
Gross: If you're buying the stock, could you raise your hand? Who's buying the stock?
Hill: Who's buying this stock?
Gross: Same-store sales are down 15%. You don't have a healthy business. You could be a value investor -- I'm the biggest value investor around, and I love a good, cheap stock. But when a business is deteriorating, time and time again, the sales have declined for six years. Eddie Lampert has engineered this company into the ground, in my opinion.
You don't want to be an owner. You could be a trader of the stock, I guess. We're not traders at the Fool. We like to own companies for the long term that we think are healthy and vibrant and being run well, and Sears just does not fit that bill. They have debt problems; their balance sheet is shaky; Eddie Lampert has tried to monetize their real estate assets, and he has to some extent. In years past, he's bought back billions and billions of dollars in stock, now leaving the company with not enough cash, in my opinion. They underinvested in the stores. One would think, even if they invested in the stores, is Sears still a vibrant enough brand and destination that the world really needs a Sears? It's just a mess. I would imagine it it's traders that are pushing the stock higher. I hope it's not your everyday Foolish-type investor.
Hill: Eddie Lampert is coming up on his fifth anniversary as CEO of this company, and as you said, it has just been, every successive year is more dismal than the last. In addition to trying to monetize the real estate, he's also sold off some of their signature brands.
Gross: Spun off Lands' End.
Hill: Spun of Lands' End, sold off the Kenmore brand, I'm blanking on the tool brand that they had --
Hill: No, Kenmore was the appliances. Was it Toolmaster? They had decent brands and they sold those off. Everything this guy touches turns to dirt. It's not gold; it's the anti-Midas touch.
Gross: Yeah. He is a relatively successful hedge fund guy. They aren't all winners, and you're seeing that right here. Which actually reminds me, a hedge fund guy I really respect, I very prominent value investor, Bruce Berkowitz, who has somewhat been struggling lately in his portfolio, resigned from the Sears board relatively recently, and I think that's a good indication --
Hill: Like, I just can't take it anymore?
Gross: -- seeing a really prominent value guy no longer seeing value.
Hill: And for whatever success Eddie Lampert may have had and has in the hedge fund industry, as the CEO of an once-major retailer, he's terrible.
Gross: Not a merchant. Clearly not a merchant.
Hill: Not a merchant.