SHLD

The Race to the Bottom

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This week, infamous American department stores JC Penney (click ticker for report: ) and Sears (click ticker report: ) reported terrible second-quarter results. Let’s take a closer look at these failing former industry giants. JC Penney JC Penney continues to suffer from Ron Johnson’s strategy change and subsequent removal. Total sales declined 11.9% year-over-year to $2.7 billion, while the firm lost $2.16 per share on an adjusted basis. Both metrics fell short of consensus estimates. The firm burned through $1.1 billion in free cash during the quarter and has posted negative free cash flow of $2.1 billion year-to-date. The situation at JC Penney continues to be incredibly uncertain, particularly after activist shareholder Bill Ackman resigned from the board of directors … Read more

Which Department Store Looks Attractive?

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Our fundamental view on the department store industry hasn’t changed much after the second quarter. Kohl’s sales gains were surprising, but if we look at the two-year trend of stacked comps (last year’s quarter plus this year’s quarter), Nordstrom continues to easily outperform its peers. Source: Valuentum Ultimately, we believe improving margins in the department store industry will be difficult. Even if a firm is able to gain some additional gross margin, investments in technology will likely increase capital spending. Overall, we view the cohort as fairly valued. Fundamentally, we think Macy’s will continue to outperform Kohl’s due to its superior online shopping experience, but Nordstrom appears to have the most growth opportunities as it looks to expand on the … Read more

RadioShack: Cigar Butt, Valuentum Won’t Puff

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Famed investor Benjamin Graham, author of Security Analysis and the Intelligent Investor, made a fortune out of what he liked to call “cigar butts.” These stocks were often poor operating businesses selling for less than liquidation value. Graham would purchase said stocks with the hope that there was one last “puff” of profit left. Not all of them worked out positively, but Graham would bet on dozens of stocks trading at less than book value and hope for the best. RadioShack (click ticker for report: ) looks like a cigar butt. The firm’s core operating business is rapidly deteriorating, the firm is generating negative free cash flow, and recent rumors suggest the company is hiring advisors to help shore up … Read more

Good Bye Ron Johnson: JC Penney In Flux

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After the market closed Monday afternoon, JC Penney (click ticker for report: ) announced much maligned CEO Ron Johnson is out, and the reins will be turned over to former CEO Mike Ullman. While we saw little chance of Johnson’s turnaround consummating in a retailing powerhouse at this point, we are shocked by the timing. If there was any chance that the JC Penney turnaround was going to work, Johnson had to be given some additional time to complete the changes. The abrupt decision indicates that the board clearly believes the Johnson’s strategy would continue to fail, and the return of Ullman suggests that JC Penney may return to its previous market position. Not everything Johnson did was necessarily bad—the … Read more

Who’s Amazon’s Next Victim?

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An interesting white paper was released recently, analyzing how Amazon (click ticker for report: ) is altering the retail landscape. The paper itself had some interesting insights, but our favorite takeaway of Placed’s work was the top ten companies at risk. 1.    Bed Bath and Beyond (click ticker for report: ) 2.    PetSmart (click ticker for report: ) 3.    Toys ‘R Us 4.    Best Buy (click ticker for report: ) 5.    Sears (click ticker for report: ) 6.    Barnes & Noble (BKS) 7.    Kohl’s (click ticker for report: ) 8.    Target (click ticker for report: ) 9.    Costco (click ticker for report: ) 10. JC Penney (click ticker for report: ) For the most part, we agree with the list, … Read more

Eddie Lampert’s Buying More Sears, Should You?

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In addition to announcing improved fourth quarter results at Sears (click ticker for report: ), it was revealed earlier this week that Sears’ chairman and CEO Eddie Lampert purchased another $55 million worth of Sears for his personal ownership. The big question now is whether Lampert, a savvy hedge fund manager, is sinking his entire career into doubling and tripling and quadrupling down on Sears, or perhaps he is seeing what no one else can, and Sears is the bargain of the lifetime. We’ve been fairly critical of his tenure, but it is undeniable that Lampert has done a fantastic job focusing the company on becoming an omni-channel retailer. In his letter to shareholders, Lampert discusses the Shop Your Way … Read more

Nordstrom Is the Best Omni-Channel Retailer

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Thursday afternoon, department store and discounter Nordstrom (click ticker for report: ) reported strong fourth-quarter results. Revenue jumped 14% year-over-year to $3.6 billion, roughly in line with consensus figures. Earnings were better than anticipated but boosted by the extra week, growing 26% year-over-year to $1.40 per share. Aggregate same-store sales jumped 6.3% during the quarter, driven mostly by strength at Nordstrom Rack. As we’ve mentioned before with regards to TJX (click ticker for report: ) and Ross Stores (click ticker for report: ), Nordstrom Rack is a wonderful business that delivers designer names at a discount to consumers. More importantly, its experience cannot be replicated nearly as easily online. eBay (click ticker for report: ) and Amazon (click ticker for … Read more

Best Buy’s Holiday Sales Were Solid; Margins Are the Issue

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This morning, the maligned big box electronics retailer Best Buy (click ticker for report: ) provided updates on its holiday sales results, which were relatively strong, in our view. Breaking the downward spiral, same-store sales in the US were flat compared to last year, but continued to decline internationally, down 6.4% year-over-year. However, overall sales declined to $12.8 billion for the 9-week holiday season compared to $12.9 billion for the same period last year, suggesting overall business was fairly solid. Consistent with trends throughout 2012, consumer electronics were weak, while ‘Computing and Mobile Phones’ revenues surged. Source: Best Buy Holiday Sales Report, Valuentum Consumer electronics, largely comprised of TVs, has been weak and probably will continue to be until we see … Read more

Can Eddie Lampert Turn Around Sears?

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Earlier this week, Sears (click ticker for report: ) CEO Lou D’Ambrosio announced that he’ll resign from his position in February due to an illness in the family. Not so surprisingly, Sears chairman and hedge fund titan Eddie Lampert will be taking the reigns as CEO. Lampert, who merged Sears and Kmart several years ago, will be the chief executive for the first time, and as far as we can tell, he seems confident in his ability to turnaround the failing retailer. In an interview with the Chicago Tribune, Lampert cites Jeff Bezos’ success as a finance guy turned retailer leading Amazon (click ticker for report: ) as evidence that he can turn the dying company around. Although he hasn’t … Read more

Sears Slide Continues

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Department store Sears (click ticker for report: ) continued its long decline during its third quarter, as evident from results Thursday afternoon. The company exceeded consensus revenue estimates, though revenue still fell 6% year-over-year to $8.9 billion. Earnings, adjusted for certain items, actually increased to a loss of $1.99, which was significantly better than consensus expectations. Though results were better than expected, the company’s deterioration continued during the quarter. Same-store sales growth was weak across the board, though we saw some signs of life from the Sears Domestic business. Same-store sales fell 1.6%, and management noted that net of consumer electronics, same-store sales would have increased. Appliances remain an area of strength due to the housing recovery, and management noted that apparel … Read more