Eddie Lampert has finished yet another year at the helm of Sears Holdings.  And during that time he’s proven he can cut costs.  He hasn’t proven he can make money – even by selling assets.  The stock remains highly priced largely on the belief he’s building a war chest to do great hedge fund deals, but so far he’s not demonstrated Sears and KMart give him the resources to pull that off.  Instead of looking like Warren Buffet, his idle who turned a worn out textile company named into Berkshire Hathaway into a tremendous investment vehicle, Mr. Lampert looks more like the captain of the Titanic who kept up reassurances until imminent peril took down the ship.

Mr. Lampert was once a banker, and he’s never one to ignore the opportunities for financial machinations.  Sears most recent quarterly financials show a profit.  But all of that was engineered from one-time items like dividends from Sears Mexico and gains off a legal settlement with Sears Canada (see article here).  Meanwhile, sales at stores open a year turned out another decline – this time of nearly 5%.  Quarter by quarter Sears stores keep selling less and less.  And more stores are closed.  And the cash current is getting thinner and thinner.

Mr. Lampert closed the investor relations department.  So to know what’s going on is opaque, to say the least.  At the recent annual meeting he declared that his plan is to rebuild the Sears and KMart brands (see article here).  After practically killing the previous ad budget, he intends to start new ad campaigns (although the budgets were not revealed.)  His plan, or should I say hope, is that by "positioning" Sears and KMart he can improve performance.  Yet, he’s said nothing about why WalMart, Target, Kohl’s, JCPenney, Loews and Home Depot would roll over and let him start eating into their market shares. 

Mr. Lampert would like to make some acquisitions.  But the problem is that 2007 is not 1977.  Mr. Buffet started Berkshire Hathaway when the world of deal-making was still pretty small.  There weren’t dozens of multi-billion dollar hedge funds with ample resources chasing every imaginable deal.  Bershire Hathaway was able to pick and choose its deals, using very conservative financial analysis when valuing investments.  Today, only the most aggressive investors become buyers, and that means paying a pretty price for those acquisitions.  So Sears Holdings can’t generate enough cash to play into the huge deals, and the competition is so intense on smaller deals that none can be had.  Mr. Lampert is reluctantly being drug into trying to keep Sears and KMart alive, but he has no idea how to do that.

Sears and KMart were companies in trouble when purchased by Mr. Lampert.  But he never Disrupted them.  He never set up White Space.  Instead, he tried to milk them of their cash in order to buy other companies, and he’s proven he can’t do that well.  So he keeps trying to string along the company another quarter, but meanwhile competitors are pounding away at the weaknesses of a company with no viable value proposition.  And as a result, Sears Holdings drifts closer toward the Whirlpool.