Sears is still no bargain
Tuesday's dramatic share price plunge still doesn’t turn the company’s stock into a blue light special, as many other retailers have shown.
Certainly, in the last four years that Edward Lampert has presided over the fortunes of Kmart and Sears (SHLD), things have gone from bad to worse at the struggling retail empire he created.
At first, the deal looked great: He acquired a controlling interest in then-bankrupt Kmart and, after that chain emerged from bankruptcy, orchestrated a merger with Sears. The creation of the new retail entity made Lampert the first hedge fund manager to earn $1 billion, according to Institutional Investor magazine, thanks to the 69% jump in the value of his ESL Investments fund. And Lampert garnered comparisons to another bargain-buying great, Warren Buffett.
These days, however, Sears is providing Lampert with nothing but headaches. Even before the official end of the holiday sales season, the company announced Tuesday that it plans to shutter as many as 120 of its worst-performing stores. Not surprisingly, the announcement caused the stock to nosedive 27% to its lowest level in three years.
Wednesday, Sears shares were up less than 1% to $33.69 in midday trading.
But Tuesday's dramatic share price plunge still doesn’t turn the company’s stock into a blue light special, as many other retailers have shown. Analysts pointed out repeatedly that Sears has neglected its stores and will have a hard time luring shoppers away from the likes of Target (TGT) and Wal-Mart (WMT).
Even without Sears, though, investors have plenty of options when it comes to snapping up retailing stocks at relatively affordable prices. Even retailers facing big hurdles ahead have the kind of clear strategic plan that Sears doesn’t seem to possess -- The Gap (GPS) falls into this category -– or are simply so large and resilient, with such a global reach, that it seems foolish to bet against them (that would be Wal-Mart, despite its relatively sluggish growth in same-store sales.)
Indeed, buying retail stocks is a bit like shopping itself these days. There are a handful of seemingly great deals that you might want to avoid altogether, like that 32-inch flat-screen TV priced at only $200 but with a brand name you’ve never heard of and reviews of horrible sound quality. And perhaps there are a handful positioned to appeal only to the top 1% of the top 1%, like fancy pink diamond tennis bracelets or couture clothing.
But the quest is all about value -- finding a solid, if not spectacular value offered up by a recognized brand name. And those stores that focus on delivering value -- whether it’s to the upper middle-class in search of a cashmere sweater at Saks (SKS) or a fashion-forward teen shopping the trends at Abercrombie & Fitch (ANF) or a family of four trying to snag a new microwave at Target -- will be the ones that capture consumer and investor dollars.
That means paying attention to same-store sales trends. We’ll get our first glimpse of how those panned out for most stores in early January, as a variety of providers track aggregate forecasts and the retailers themselves begin announcing or discussing quarterly earnings. In November, industry-wide sales climbed 3.1%, according to the Thomson Reuters Same Store Sales Index; that figure is likely to be higher for December and for the fourth quarter as a whole, analysts believe.
Sears, for now, is an anomaly. While it makes sense to be cautious and shop for value in the retail sector, and to keep an eye on macro factors like unemployment levels and consumer confidence indicators that affect shoppers’ willingness to open their wallets and spend, there’s no reason why investors shouldn’t wrap up their holiday season with a few well-researched and value-priced purchases for their own portfolios.
@ dam tired of this
You are so right about jcpenny. They used to have quality clothes, now it is all cheap crap and the prices are still the same. this is another store that will be going down the toilet sooner than later. I saw a top once that was made with the most cheesy material and they wanted $70.00 for it. I could not believe anyone would pay that much for something that would last about 2 washings. If only these stores that used to be known for quality at an affordable price would return to their original business ethics, they would not see their stores closing and eventually file for bankruptcy. then again it's all about profit and that is why they will all die out.
I remember the days when Sears would go to announce a sale, but days before their prices would mysteriously go up, and then the sale price would put it back to about what people were paying before. True, that was a fair time back....
These days they're going to have to get used to a fair bit of competition. And same goes for JC Penny from some of the prior posts. In more then a small number of cases, these department stores exist in malls, with other department stores, and smaller shops between. Depending on the mall, it might not be uncommon t see 3, 4, or even 5 major department stores all in the same building, along with swathes of other shops. People going to a mall don't have to shop at just one, and can easily walk around to the other stores to compare both PRODUCTS as well as prices. It's not all that far to travel when they're in the same mall. And many times, a Wal-Mart and other such stores aren't that far from the malls either....
At this one mall by my house (and there's more then 1 or 2 near by) there's a Sears, a JC Penny, a Macy's, and a Boscov's all together, spread out with more then a few dozen between each. Some malls around here have all of tha and add a Lord and Taylor to the mix. When I lived in NM, there were some other chains more prevellent out west. But whatever the case, they've got a lot of competition, from more then a few companies. It's part and parcel to doing business in any decent sized mall. And if they can't compete, they'll lose the business. It's particularly tight now, because people have to stretch their finances, but even in better economic times people would still pick the store that offers what they want, in the qulity they're looking for, at a better bargain. It's not like walking down the hall to go to another store is that much trouble....
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Investors are hoping the chain can emulate the rapid growth of Chipotle Mexican Grill.
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