News flash: Retail spending is up despite stock market uncertainty, the payroll tax hike initiated at the beginning of the year and general concern over the slow economic recovery.
Indeed, earnings reports out from a wide range of retail stocks, including Best Buy (BBY), Urban Outfitters (URBN), and Home Depot (HD) suggest a decent surge in spending out there.
Morevover, InvestorPlace retail guru Alyssa Oursler forecasts what I would term “cautious optimism” about the outlook in the sector for the remainder of the year.
But its not all rosy; Aeropostale (ARO) had some nasty earnings numbers that translated into a solid 22% spanking of its share price over the last month, while Macy’s (M) and even WalMart (WMT) found the going a bit rough over the last quarter.
And there’s another category of retailer that’s in even worse shape – what I like to call “dead retailers walking.”
These guys are in a world of hurt well above and beyond the usual challenges facing the retail sector. They are, in fact, on life support and in critical condition.
Here are three retail stocks fighting for survival against the odds:
I’ve been allowed my rampant speculation before on Sear’s (SHLD), but nothing I’ve seen since March has changed my mind on this retailing icon; Sears is going to be a real estate play before too long.
Investor and hedge manager Eddie Lampert, who bought Sears in 2005 and became CEO this year, has overseen losses exceeding $4 billion over the past two years while dumping assets, including Sears Hometown (SHOS), and closing down smaller stores and paring back its Canadian operations.
How’s it working out? Well, not so well, really.
Over the last five fiscal years Sears has seen revenues drop 15%, and it hasn’t had a cashflow-positive year since 2011. Its most recent results for the second quarter ended Aug. 3 suggests the pattern continues; revenues fell over 6% compared to last year’s comparable period, while its loss widened to $194 million from $132 million.
At one point I thought CEO Eddie Lampert had a plan, but I’m giving up on the notion of where this is all going. But whatever it is, it can’t go on too much longer. Sears as a retailer is slowly sinking.
Consumer electronics supplier Radioshack (RSH) can best be summed up in my most recent visit: I bought a plug for my electric guitar cable and left.Total time in the store: maybe 2 minutes.
Bottom line? There aren’t nearly enough people like me making 2 minute, under $10 transactions to make ends meet.
Radioshack executives know this, and they’ve gone out looking for help in shoring up balance sheet and liquidity issues to help the cause. But it’s a short term hope: sales are at best flat, margins continue to get squeezed, and the losses keep piling up. Second quarter revenues came in at $844.5 million, just under last year’s $849 million, but ahead of analyst estimates of $816 million.
However, gross margins came in at 37% compared to 40%, and its net loss of 53 cents per share was much worse than last year’s 21 cents, and analyst estimates of 21 cents per share. Cash on hand is now under $500 million, and free cashflow is non-existent.
Worse yet, S&P cut its debt rating — and RSH has plenty of debt, by the way — to a non-investment grade ‘CCC’, with a warning that “a default could occur within 12 months, absent a major business turnaround or increased liquidity.”
Perhaps sooner than that…
Barnes & Noble
One daily meeting at InvestorPlace started with this question: “why would anyone want to own Barnes & Noble (BKS) for the next five years?”
Good question, since its unlikely they can last more than a single year the way its going…which is badly.
The struggling retailer is trying its best to stay relevant in the book selling space, but with its Nook product floundering, slashed prices on its Simple Touch e-readers, and no real tablet business, BKS has nowhere to turn.
With no dividend left for investors to hang their hat on for income, its latest quarterly earnings report can’t help matters. BKS reported a loss of $87 million ($1.56 per share) compared to $39.8 million (76 cents per share) for the comparable period, with revenues down 8.5% at $1.33 billion. Nook-based business (e-books and devices) slid 20%, and sales at stores open over 15 months fell over 9%.
Any good news? Yep: college bookstore sales improved by 2.4%, although comparable sales at colleges fell over 1%. As long as BKS can find new college outlets, this segment should improve.
But that’s it. BKS doesn’t forecast any particular breakout from the malaise, and indeed provides guidance indicating revenues will continue to fall. It’s hard to make a case for BKS staying the course without finding a buyer….and soon.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he does not hold a position in any of the aforementioned securities.