by Marc Bastow | October 22, 2013 9:45 am
It’s hard to look away from the train wreck that is JCPenney (JCP), as shares of JCP stock have shed half their value in the last month alone, bringing year-to-date losses for JCPenney stock near 70%. In fact, it’s pretty safe to say flailing JCP has become the poster child for out-of-touch management, baffling strategy and fiscal desperation.
As hard as it is, though, investors interested in retail stocks need to pry their eyes away from the JCP stock soap opera — because it’s distracting us from other retail stocks that apparently and surprisingly appear headed for happier endings.
It’s pretty safe to assume that no one (definitely not me, at least) expected retailers Sears Holdings (SHLD), RadioShack (RSH) and Staples (SPLS) to outperform the market in 2013, much less head into the holiday season with decent momentum.
Yet here we are. Despite what’s been nothing short of a difficult year for retail stocks, all three have engineered at least temporary turnarounds — juggling acts that have boosted share prices higher since the start of the year.
Still, that doesn’t necessarily mean the good times will last. Take a look at all three retail stocks posted surprising revivals … and find out where they were, where they are and where they could be going.
YTD Price Appreciation: 36%
Sears Holdings (SHLD) is still losing money hand over fist … just not as quickly as before. CEO Eddie Lampert has put Sears through so many changes it’s hard to keep track, but a quick recap includes closing down stores by the truckload, selling off its Orchard Supply Hardware (OSH) and Sears Hometown and Outlet Stores (SHOS) and renegotiating a big part of its leased store portfolio.
But Sears is not only selling underperforming stores; it also sold off four profitable stores recently just to raise cash. That’s a nice boost to the balance sheet, but turning real estate into cash won’t do much to increase foot traffic and sales. No wonder SHLD still lost just under $4 billion combined in its last two fiscal years.
So what’s driving the stock price improvement? Well, it could be that real estate value after all. An upbeat report from Baker Street Capital placed SHLD value at $92 to $169 per share (the high-end of the range is three times the current price of SHLD stock) primarily based on a property-by-property valuation. The only other possibility would be smaller losses — but that’s hardly a bullish thesis.
Frankly, I don’t see SHLD stock going anywhere but down in the long run. If ever pictures told a story, just take a look at these snapshots from Sears — and it’s not hard to understand why SHLD stock probably won’t keep climbing.
YTD Return: 50%
Just last year, things looked pretty bleak for electronics retailer RadioShack (RSH). The company suspended its dividend, lost just over $139 million for the full-year and shares of RSH stock dipped below $2 per share by November.
RadioShack didn’t simply roll over, though. Instead, RSH exited a money-losing wireless store-within-a-store relationship with Target (TGT), brought in new management and went looking for help from investment banks to buy time.
That time has allowed RSH to focus on its biggest strategic shift: Opening concept stores which highlight in-demand brands like Apple (AAPL). It’s a high-stakes gamble aimed at essentially rebranding RadioShack as hip and high tech … and it needs to work.
So far, though, little has changed. RSH has yet to see a profitable quarter in 2013, while just-released Q3 earnings showed revenue, gross margins and net losses all headed in the wrong direction. So far today, RSH stock is off more than 12% as a result.
The only good news is General Electric (GE) recently stepped up with an $835 million debt financing plan, and that RSH has around $300 million in cash and nearly $300 million in available credit under the program. That offers a glimmer of long-term hope … but a glimmer hardly seems to justify the 50% climb RSH stock has posted so far this year, even after this morning’s sell-off.
YTD Return: 41%
Staples (SPLS) bounced around in 2012 on chatter that it would be taken private, but that has yet to happen. Instead, SPLS has been working to close stores and move away from the brick-and-mortar business model.
It might surprise you, but Staple is the second largest online retailer, behind only Amazon (AMZN).
Still, the shift resulted in over $1 billion in charges in just one quarter last year … which paved the way for a $160 million loss from continuing operations. Besides, online retailing for office supplies is extremely competitive, which kills margins. Just look at the most recent quarter for Staples, which featured a 4% year-over-year drop in revenue and a whopping 14% drop in net income.
On top of that, Staples just announced it will match prices from Amazon. Yeah — that should be really good for profit margins.
No wonder more cutbacks and downsizing are on the way. The Boston Globe recently reported that CEO Ron Sargent is reorganizing the SPLS management team, laying off workers and closing even more stores. The only reason for any kind of long-term optimism is that SPLS stock comes with a 12-cent dividend, yielding just under 3% and paying you for patience.
Bail out quickly if it gets cut.
Marc Bastow is an Assistant Editor at InvestorPlace. As of this writing, he was long AAPL.
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