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Sears and Coke

Dear Mr. Berko: Sears finally reported a profit last May — $2.28 a share. My stockbroker had me buy 1,000 shares in early June at $7 because he thought Sears had turned the corner to profitability. He insists Sears will trade in the low $10s this year and wants me to buy 1,000 more shares. What do you think? And what do you think of Coca-Cola’s new diet soft drink? My broker also wants me to buy 200 shares of Coke. Please advise me. — GH, Vancouver, Wash.

Dear GH: Your broker has GAPO (gorilla armpit odor) and an IQ low enough to freeze water. Sears is still your grandfather’s store and can’t change. And CEO Eddie Lampert wants to empty every Sears store as fast as he can so his Seritage Growth Properties (SRG-$45) can make a sizzling fortune from Sears’ misfortune.

Sears Holdings (SHLD-$6.97), in the traditional sense, didn’t earn a pfennig that quarter. The stock rallied temporarily as some investors, high on hope and low on brains (a condition caused by eating too many tofu burgers), bought the shares; they soon got butt-kicked by reality. Yeah, SHLD, for the first time in several years, reported a quasi-profit that quarter, but that profit wasn’t operating income. Rather, it derived from the sale of Craftsman to Stanley Black & Decker for $900 million. Those proceeds are called non-recurring income. So if we black those numbers out, SHLD had a loss of $230 million that quarter. SHLD is smoking cash at a rate of $150 million a month, and Fast Eddie’s hedge fund, ESL Investments, has $1.6 billion in loans to SHLD, at an average interest rate of 9.75 percent.

Fast Eddie’s Seritage Growth Properties should benefit hugely from Sears’ problems — all the more if he bankrupts Sears. Sears Holdings occupies many hectares of prime real estate. And SRG has the right to capture all of the space occupied by Sears, including by Kmart stores. The average Sears store is about 140,000 square feet, while the average Kmart is 94,000 square feet. Sears, as an original anchor tenant, pays an average of $3 per square foot, while smaller mall tenants pay between $12 and $16 per square foot. So Fast Eddie’s Seritage Growth Properties is renting Sears’ vacated space (after rehab) to Lucky’s Market, Whole Foods Market, Dick’s Sporting Goods, Scheels, medical practices, for-profit colleges, PetSmart, Nordstrom Rack, Saks Off 5th, new car showrooms, Dave & Buster’s, tattoo parlors, pawnshops and pot shops. New tenants are paying SRG an average of $18 per square foot, and Fast Eddie’s real estate investment trust is making a bundle.

Because Sears lacks a positive future, I urge you to do two things right now: Sell the stock, and then fire that peccant sad sack you call a broker, who must have slipped into the gene pool when the lifeguards weren’t watching.

Five years ago, Coca-Cola (KO-$45.78) was trading at $41. Since then, revenues, earnings, book value, cash flow, return on capital and capital spending have declined, and total debt has almost doubled. Meanwhile, revenues, book value and earnings are expected to decline again this year. KO’s 3.4 percent dividend has increased in each of the past 55 years and could be increased next year, but it’s not enough to override KO’s continued sloppy performance. I’m surprised that Warren Buffett is still its largest (400,000 shares) shareholder. Because the stock has traded flat as a flapjack for the past five years, I’d not be surprised if Buffett — even if he does seem to have a soda straw view of KO’s future — lost his patience and let his KO shares go.

Its new diet soft drink, Coca-Cola Zero Sugar, is selling well in Europe and is ballyhooed as a potentially strong contributor to KO’s soft earnings. But KO seems to have more diet soft drinks than Miss Piggy has Muppets. And I really doubt a new diet drink can give KO the fizz needed to move its share price above a flat line. I wouldn’t care to own the stock, which has floundered in the portfolios of Vanguard, BlackRock, State Street, Berkshire Hathaway and other prominent institutions for years.

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BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.