"Wall Street's been too focused on sales," he said at the International Council of Shopping Centers conference in New York City earlier this week. "You're going to see a massive increase in retailer profitability."
That might explain Ackman's affinity for Sears Holdings (SHLD), a company that continually reports dismal sales figures. The retailer's two chains, Sears and Kmart, recorded a third-quarter same-store sales decrease of 2.3 percent and total revenues fell $470 million from the same period a year ago. The low sales didn't help it's bottom line, though, as the company reported a $106-million operating loss.
Nevertheless, Ackman believes in Sears as a viable operator and said nice things about its often-criticized chairman Edward Lampert. "He's underestimated," Ackman told the audience of shopping-center owners and real estate brokers. "He's going to be running a little mall within your mall."
Ackman is also a fan of formerly bankrupt mall owner General Growth Properties (GGWPQ), of which he sits on the board of directors. Pershing Square saw promise early on in the firm, buying a major stake in the company when it was trading at less than a dollar per share. GGP is now valued at over $10.
Despite its recently restructed debt load, totaled at $9.7 billion, GGP's fundamental operations are intact. Occupany at its over 200 malls remains solid at 91.3 percent in the third quarter, up from 91 percent in the second quarter. However, tenant sales slipped to $409 per square foot, down from $455 during the same year-ago period.
Part of the reason Ackman said he is not worried about lagging sales is because retailers really haven't shut that many stores. "We think store-closure fears were overblown," he said. Even though Circuit City and Linens 'n Things went out of business, many big chains actually are ramping up their expansion plans. Chains like Staples are expanding. 7-Eleven is opening plenty of stores. And Sears didn't curve back its store count in any major way since the economy took a turn for the worst.
Many believe that poor retail sales equal a consumer not willing to spend. But Ackman could be on to something. If store counts aren't decreasing dramatically, then things might prove better than some industry observors previously thought. But lets see how the holiday season shakes out first and the potential for more retail bankruptcies after the new year before honoring anyone's crystal ball.