Specialty retailer Restoration Hardware (NASDAQ: RSTO) was supposed to be sold to private equity firm Catterton Partners for $6.70 a share. But, so much for the "done deal," the "sure thing." Late yesterday, Sears Holdings (NASDAQ: SHLD) bought 13.9% of the smaller company's shares.

According to CNN Money, "Sears said it may make a tender offer for all of Restoration Hardware's shares or raise its stake by buying additional shares on the open market." RSTO shares rose to $7.46 after hours.

But with Sears in such deep trouble of its own, why is it fooling around with buying a small retailer with a $250 million market cap, $800 million in sales, and shaky profitability?

Why, indeed? Shareholders in Sears would have a right to be upset. Head man Eddie Lampert would have people believe that his retail giant, which combines Sears and K-Mart, is the picture of efficiency and smart merchandising. Why then, are its shares at a 52-week low of just above $114 a share?

Sears can't waste its time buying little companies. It has too many big problems of its own.

Douglas A. McIntyre is an editor at 247wallst.com.

BusinessWeek's Bob Reed wonders about Eddie Lampert's stewardship of Sears Holdings Corp. (NYSE: SHLD), the parent company of Sears and Kmart. While investors were buoyant about the company's prospects less than a year ago, due largely to Lampert's stellar track record as a hedge fund manager, things have soured. Sears has reported lackluster results, and the retail turnaround appears to be like most so-called turnarounds: not much is turning. Meanwhile, the stock is down about a third from its high.

Reed has this to say about the future of the company: First, consider this possibility: Lampert makes good on his word that he is going to transform Sears Holdings into a dynamic, successful retailer. He pours cash -- lots of it -- into operations, stores, and marketing. More important, he hires a top-notch merchant, a superstar executive to spotlight the five, six, or seven core retail strengths that Sears still possesses, and then embarks on a 5- to 10-year rebuilding effort.

The chances of Lampert signing on for this action? Slim to none. Spending tons of money for a far-off and uncertain payback are not part of his hedge fund manager DNA.

Exactly. His well-documented investment prowess aside, Sears is looking like it could be to Lampert what TWA was to Carl Icahn. A brilliant financial mind takes over the reins of a large, troubled company, and his tightfistedness combined with his lack of operational expertise combine to make an effective turnaround impossible, and shareholders suffer.

Sears Holdings Corp. (NASDAQ: SHLD) the hedge fund ... err, retail chain headed by hedge fund star Eddie Lampert, may see renewed pressure to sell off some it its valuable real estate soon. Notable activist investor William Ackman will see to it, as his fund, Pershing Square Capital Management, has acquired five million shares of the retailer. Mr. Ackman, who battled Lampert last year for control over Sears Canada, is set to have another celebrity deathmatch with him again soon, I'd suspect.

It's no surprise to anyone that Lampert's real mission with Sears Holdings is not the operational efficiency (or even profit) of the retail side of things; that's just a side mission probably talked about a few minutes at each board meeting. What Lampert did with Sears was to make it a holding company -- but the truth is, he owns so much of it that Ackman's potential advances may be akin to ascending a steep hill with slippery shoes on his feet. The New York Post even says that Ackman's buy-in was for "a long term investment" more than any moves to get Sears on the property-unloading trail.

Still, Ackman's purchase makes him the fourth-largest SHLD shareholder, and it's hard to imagine him wanting those shares for some kind of "long term investment" -- it just doesn't suit Ackman's profile at all. He's said before that the combined value of Sears' real estate is valued more than Lampert's $22 billion figure, and that difference provides a nice "cushion" should the retail end of things continue to falter. Sears' retail operations are going nowhere these days since there appears to be little direction to that end of the business. I submit that Ackman wants to break it all up and sell some real estate, Gekko-style. That, or he does not deserve the title 'activist investor.'

As BloggingStocks' Brent Archer indicated a few days ago, Sears Holdings Corp. (NYSE: SHLD) announced a rather large $1.5 billion share buyback in the face of declining quarterly sales and profits. These figures came as no surprise to the retail pundits keeping an eye on Sears and Kmart same-store comps and details. So, why is Sears buying back ... now?

It's a standard procedure for Sears Holdings Chairman and top investor Eddie Lampert, who was hailed as the next Warren Buffet a few years ago after orchestrating the merger between retail laggard Sears and bankrupt-prone Kmart. Yes, there were more than just retail assets in that decision (like real estate holdings), but the retail side, despite many promises from Lampert, has still not shown any real threat to competitors like Kohl's Stores, Inc. (NYSE: KSS), Target Corp. (NYSE: TGT), Wal-Mart Stores, Inc. (NYSE: WMT) and Macy's Inc. (NYSE: M).

Sales at Sears Holdings have slid, its stock has lost almost 33% of its market value since peaking earlier this year, and its cash pile is dwindling. Solidifying market value with buybacks is not exactly new, and it's an oft-ran strategy for Lampert. Is it a sign of desperation or simply a timed event? Is Lampert even in tune with the retail side of the business he now chairs or is he just trying to maximize his investment? The smart money says the second choice is the correct one, and I'd be surprised if Lampert gives a rat's behind about any focus on improving the retail operations of either Sears or Kmart. But, the next Warren Buffett? Meh.

By most measures, Sears Holdings Corp's (NASDAQ: SHLD) latest confession that same-store sales continue to suck would be a sign to abandon ship. However, the fact that Eddie Lampert, a Warren Buffett disciple, is at the helm with billions of dollars of loose cash in his pocket continues to buoy up the foundering company's stock.

The spring sales results were stinkers, for sure. Kmart sales fell 3.9%, while Sears stores took a 4% hit, this after a concerted effort to trim expenses. With these results, the company warned that the second quarter EPS would finish at $1.06-1.32, far short of analyst's expectations of $2.12.

The slacking sales have been blamed variously on the housing decline, rising energy costs and poor weather conditions. No mention was made of tired locations, tired store designs and uninspired product lines, all of which could be addressed with some of the $3 billion plus cash on hand or the $4 billion in prearranged borrowing in their pocket. The company, instead, bought back almost $500 million in shares in the past nine weeks, with a further $1 billion already authorized by the board. This should offset some of the profit shortfall, but the market is indicating its overall displeasure with a sharp decline in SHLD price of more than 6%.

The question is, does Lampert intend to invest to check the decline in the value of these iconic brands, or pull them apart to strip out their value and use the profits to acquire other properties? The longer Sears and Kmart are allowed to languish, the more probable this seems. Recent speculation by BloggingStocks writers about this issue are seeming prescient.

Why Sears Stinks – Julie Tilsner
Wal-Mart takes #1 spot in retail as Sears drops - Brian White
Examining Eddie Lampert's portfolio- Sears Holdings - Brent Archer

For some reason stock trading is still running rampant in the market despite all the evidence to the contrary that it is a bad idea. It is a bad idea to pay fees and taxes (or take losses, even worse) no matter how low because they eat away at your overall returns. It is a bad idea because the basis of the decision to buy or sell has little or no fundamental rationale except momentum, or charts, or news of the day, or analysts' calls, or a Cramer rant. But most importantly to me it is a bad idea because all of the most successful and wealthiest investors do the opposite -- Warren Buffett, Bill Miller, Eddie Lampert and Carl Icahn just to name a few.

Since history has proved over and over and over that day trading is a loser's game, why do it? The only reason I can think of is for the adrenaline rush. It's the sport of it. Just watch Cramer and you can see the crazed sports fanatic looking for a fix. He makes it exciting! He makes it an adventure! He needs something to talk about!

If he followed a process enjoyed by Buffett or Miller his show might be on the air monthly instead of several times a week. Instead of frantic or manic gyrations he would be making a few boring comments and calm suggestions about a few stock possibilities before encouraging his viewers to tune in next month. Cramer and other traders have built up business as a sport and as entertainment. But, if you want to get rich, follow the investors not the traders.

Sears Holdings Corporation (NASDAQ: SHLD) opened at $168.05. So far today the stock has hit a low of $167.57 and a high of $169.91. As of 10:50 a.m., SHLD is trading at $169.04, up 0.97 (0.6%).

After hitting a one year high of $195.18 in April, the stock has been sliding over the past two months. The stock is continuing a rally that began yesterday afternoon as retail stocks were boosted by a Kohl's (NYSE: KSS) upgrade and Best Buy's (NYSE: BBY) expansion, buyback, and dividend hike trifecta. Shares of SHLD make up 71.44% of Chairman Eddie Lampert's portfolio. Lampert is a student of Warren Buffett's who believes in investing in a stock for long term gains, and also investing in a company that is undervalued but ripe for a turnaround. This recent dip in SHLD may be a good buying opportunity for investors looking to get in on what this guru investor believes to be a solid long-term performer. Recent technical indicators for SHLD have been bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $140 range. SHLD hasn't been below $140 since September and has shown support around $165 recently. This trade could be risky if retail numbers are soft over the summer, especially with SHLD reporting earnings in the week before August expiration, but the stock would have to fall by 17.3% before we would be in trouble.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: At publication time, Brent Archer neither owns nor controls positions in SHLD, BBY, or KSS.

Over the years, the master hedge fund manager of ESL – Eddie Lampert – has made a fortune by scoping up big positions in ailing companies. Then with some operational magic, he turns things around. In fact, one of his latest investments is Citigroup (NYSE: C).

Because of his mega success, some think he's building the next Berkshire Hathaway (NYSE: BRK.A) and will become immortalized like Warren Buffett.

What's next for Eddie? Well, according to a report from CNBC's David Faber, Lampert is looking to raise between $3 billion to $5 billion. True, he already manages $18 billion. But why not get some more?

With the frothiness in the equity markets, I don't think he'll have any trouble getting what he wants. If anything, he'll probably be turning money away.

OK, so you want to invest with Eddie? First of all, there will be a five year lock-up on your money. And, yes, you'll need a minimum of $25 million.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Curious about the state of retailer Sears (NASDAQ: SHLD), I ventured into a local store this past week to determine what has changed in the last decade within this age-old retailer. After viewing a Sunday newspaper advertisement over last weekend, it seemed to me that the ads Sears puts out have not changed in quite a long time. Exercise equipment and tools fill most of the space. If I recall correctly in 1995, it was the same deal. Are these still hot retail categories or are they value-added retail products that differentiate Sears from the competition?

When Eddie Lampert merged Sears and Kmart in an effort to cash in on the real estate holdings from both locations, I wondered if the actual retail chains themselves would end up becoming neglected. While I don't have access to a Kmart nearly, my visit to a Sears location this week confirmed that suspicion. Sears looked like a retailer from the 1980s inside the store except for the flat-panel televisions and some other electronics items I viewed (and had to search for). In other words, if Sears is not going to compete with the shopping environments of competitors that have changed with the times, just exactly where is it headed?

Not sure. The distinct impression I received from browsing all of the departments at my local Sears was that the retailer was in dire need of an image makeover. Any Target (NYSE: TGT) or Kohl's (NYSE: KSS) location beats the appearance and merchandising of Sears by a long shot. Now, to be fair, Sears does sell quite a bit of hardware, tools and machinery, and that really isn't conducive to a "bright and cheery" feeling when browsing. With some retailers using a "compartment feel" to psychologically rope off certain merchandise areas to appease the target customer, but Sears is most definitely not doing this in any fashion. I'm not sure who is still shopping at Sears these days, but for the overall feeling I received just walking in there, it's hard to see how Sears sells anything. Of course, the company does sell quite a bit, but it's not exactly trouncing the competition. Retail sales have been soft at Sears and it's not clear how it will turn things around.

Sears Holdings Corp. (NASDAQ: SHLD) released its first-quarter numbers and the results looked like a reason to celebrate as profits jumped up by 20%. Where did that 20% come from? How about insurance money from Sears locations damaged by 2005 hurricanes and an unrelated legal settlement? In other words, the boring business of retail in Kmart and Sears stores really did not contribute to success here. Surprised?

Net income for the quarter rose to $216 million from $180 million while sales fell 2.5% to $11.7 billion. Yawn. In addition, same-store sales for the quarter fell 3.9% on less demand for home appliances at Sears and slower sales of health and beauty products at Kmart. Since I'm sure many Americans buy health and beauty products at Kmart, I think I'm buying the home appliance sales slowdown in Sears stores more as a reason here. But could that alone have contributed to a 3.9% same-store sales decline?

With Sears Holdings being more of an investment house and clearinghouse for Eddie Lampert rather than a thriving retailer bent on increasing market share, these results aren't surprising. From my experience, Sears stores are mostly dirty locations with what seems like a 1980s-era merchandising mindset (not sure about Kmart -- someone want to chime in here?).

Same-store sales have fallen every quarter since Sears and Kmart combined in 2005 and they don't look to get any better soon. Let's see if Lampert is serious about actually spending money to improve the retailer's operations here. So far, zilch -- and it shows.

In Part 1 of this series, I found two possible candidates for my Dow value picks, Alcoa Aluminum (NYSE: AA) and American International Group (NYSE: AIG). Here we review the next five DJIA stocks, searching for further value in light of the frequent new Dow highs. Lately, the Dow seems to be benefiting from the number of companies with growing international business, its higher than S&P average yields (2.3 vs 1.8 as a whole), and the safe haven nature of large caps in a precocious market.

AT&T (NYSE: T) -- Like most of the Dow stocks, T pays a high yield, currently 3.5%, and like the others it pays it consistently. This company is the aggregation of SBC, Pacific Bell, Nevada Bell, Bell-South, AT&T long distance and Cingular Wireless. It is the only one of today's five stocks that I have owned (separately as AT&T and SBC), but I do not own any shares of AT&T now and I do not care to. After all of the expansion done by mergers and acquisitions and only limited internal growth, I am not sure what the upside is.

How much pricing power will the new AT&T have, given ongoing competition in each segment of its business from other wireless carriers, cable television, and VoIP? Considering all of the recent M&A activity, it seems to have relatively low debt and huge cash flow. It also has a P/S, P/B, and P/CF in the lower range of most stocks. But a P/E over 20 is too high given that I do not see where future growth will come from. It seems to me for every competitive battle AT&T might win on one front they may lose an equal amount on another. All things considered, this stock seem fairly priced with limited near-term upside.

It is amazing to watch when Warren Buffett announces he has made a purchase in such and such company. Sure enough, the shares are active that day and move up. Investors are pleased with the 5-10% gain and then what invariably happens is the boost evaporates and the stocks stall-out. The stocks have their day in the sun and then many investors are off to the next headline.

Buffett, Carl Icahn and Eddie Lampert have staffs of MBA's crunching numbers, applying probability factors and examining margin expansion or contraction based on several assumptions. After grinding the data through rigorous tests and models, investment recommendations are made to the committees, headed by the Mr. Buffett, etc.. The intangibles are then put into place: quality of management being the first and most important one. They look at addressable market size: is it expanding or contracting? Is it a zero-sum game of shifting market share amongst the better players or is the market growing and the intended investment is also taking share? This is the science of investing.

The art of investing is figuring out the future of the intended company and the industry where it plays ball. The art takes into account a 5-10 year time horizon--not the next headline. The problem with many investors, professional and individual, is a lack of patience.

Citigroup Inc (NYSE: C) has attracted the attention of Eddie Lampert, hedge-fund manager extraordinaire. Why? Two reasons.

First, Citi is a good way to play a steepening yield curve. With the economy, for the most part, showing signs of slowing down, Fed interest rate drops should lead to high profits for the financial services giant.

Second, displeasure with Citi's CEO, Chuck Prince, could lead to management changes or a break-up of the company. Tom Brown of Second Curve Capital and Bankstocks.com has been suggesting the break up of Citi for some time.

Sometimes in the investment business it is best not to think but to follow. Lambert has been on a great roll so why not go along for the ride. Citi generates a good dividend, prints money and portfolio managers will have to shift more of their assets into financial service stocks as the fed drops rates and the yield curve steepens.

MAJOR PAPERS:

• New York State Attorney General Andrew Cuomo has filed a suit accusing Dell Inc (NASDAQ: DELL) and affiliate Dell Financial Services of deceiving consumers, including fraud, false advertising and deceptive business practices, to increase computer sales, reported the Wall Street Journal (subscription required).
• Alan Greenspan signed Allianz's (NYSE: AZ) Pacific Investment Management, known as Pimco, as his first economic consultant client, according to the Wall Street Journal.
• Barron's Online's (subscription required) "Inside Scoop" column reported that Blue Nile Inc (NASDAQ: NILE) CEO Mark Vadon sold 250,000 shares and CFO Diance Irvine sold 40,000 shares, with InsiderScore.com's Ben Silverman advising caution on Blue Nile due to the selling.
• The Financial Times (subscription required) reported that Citigroup Inc (NYSE: C) shares rose sharply in after-hours trading yesterday after Edward Lampert, the hedge fund manager who controls Sears Holdings Corporation (NASDAQ: SHLD), disclosed he had acquired an $800M stake in Citigroup.

WEBSITES:

• TechCrunch.com reported, citing two sources with knowledge of the deal, that News Corporation's (NYSE: NWS) MySpace will acquire Flektor for a price in the $10M-$20M range.

Sears Holding Corporation (NASDAQ:SHLD) will be putting up its $780 million media-buying business up for review in its efforts to cut expenses according to the company. It's always good to see retailers (and companies in other industries) open up marketing, advertising, and media buying functions to third parties and let the best quality for the lowest price secure a bid. Hey, that's competitive capitalism, right?

Sears also said that the drop in sales it saw in 2006 was not nearly as bad as the 2005 sales plunge, although ESL Investments probably isn't that interested in retail sales at all, but trying to recoup some investments in the real estate Sears holds nationally, as Eddie Lampert would probably tell you (or not).

But still, you gotta keep the expenses under control regardless, and especially in the fiercely competitive retail sector where margins can be thin and customer trends can be shifty. At least Sears Holdings did put the spin doctor on alert when announcing that same-store sales for 2006 "only" declined 3.7% instead of the 2005 level of 5.3%, according to filings with the SEC. In other good (bad?) news, same-store sales sunk 0.9% for Kmart during the recent holiday shopping season and Sears saw a 4.9% drop. Good times.