by James Brumley | November 21, 2013 9:30 am
To say that JCPenney (JCP), Sears Holdings (SHLD), and Best Buy (BBY) — along with their shareholders — have been run through the wringer over the past few quarters would be an understatement.
JCP stock, SHLD stock and BBY stock have been downright exhausting to own and difficult to handicap, as each works through its respective version of a so-called turnaround.
Recently released earnings for JCP, SHLD and BBY didn’t necessarily shed any light on their respective situations either. That’s because in all three cases, the results could have been (and were) seen as a glass half-full just as easily as a glass half-empty.
Still, the details and accompanying comments for Q3 JCPenney earnings, Sears earnings and Best Buy earnings are worth a closer look — if only to know what these retailers plan on using as their talking points for their next earnings updates.
Here’s what investors in JCP, SHLD and BBY need to know:
The JCPenney earnings numbers for the third quarter could best be described as “less bad.” Revenue at JCP fell 5.1% on a year-over-year basis, while same-store-sales slipped 4.8%.
Actual JCPenney earnings — or in this case, the net loss — widened to a loss of $1.81 per share vs. the year-ago loss of 93 cents per share. JCP stock analysts were only looking for a loss of $1.72 per share, so from a relative perspective, the JCPenney earnings report was a disappointment. Nevertheless, JCP stock gained more than 8% after the numbers were posted.
There are signs of new life for the company, however, outside of the JCPenney earnings numbers for Q3. In October, same-store-sales grew by 0.9% — the first same-store-sales improvement since late-2011.
The ongoing concern about liquidity and longevity are still apt to be a drag on JCP stock in the future, though. The retailer has been forced to discount much of its inventory in order to get it out of the way for new goods. Plus, JCPenney has yet to increase revenue at a pace that’s on par with growing expenses, and ended the third quarter with less cash than it started it with.
The good news: Best Buy earnings for Q3 were a little more encouraging than the JCPenney earnings numbers. The bad news: That relative success didn’t have the same positive impact on BBY stock that JCP stock experienced. In fact, Best Buy stock slumped 11% following its Tuesday morning announcement.
All told, Best Buy earnings were a drastic improvement, with EPS going from a loss of 3 cents per share in Q3 of 2012 to a profit of 16 cents per share last quarter. The results handily topped estimates for an EPS of 13 cents per share of BBY stock.
So why did shares of Best Buy stock tank? It may have had something to do with stagnant revenue. Sales of $9.36 billion were right in line with the top line from the same quarter a year earlier, and a tad short of the $9.37 billion in sales that analysts were expecting for Q3. Perhaps also working against BBY stock was the fact that shares had rallied 286% this year up until the point when the Best Buy earnings numbers were released. That suggests the market had enormous growth expectations. So BBY stock could have fallen even with significant sales growth for the third quarter.
More than anything, though, investors need to be wary of shrinking gross margins in future Best Buy earnings reports, as the company contends with more and more competition. Gross margins fell 60 basis points in Q3, and they could slide as much as 90 basis points in the fourth quarter as BBY aims to win business in the all-important holiday shopping season.
Last but not least, the Sears earnings report from this morning may have been the most discouraging of the three major retail turnaround efforts underway this year. The company’s revenue fell 6.6% to $8.27 billion. Net income (on a GAAP basis) fell from a loss of $4.70 per share in the same quarter a year earlier to a loss of $5.03 per share of SHLD stock in the third quarter of this year.
Sears earnings also showed a 3% drop in same-store sales.
As with JCPenney stock, the decision to become or remain a shareholder of SHLD stock is largely going to lie in how it handles its waning liquidity. Unlike JCP, however, Sears CEO Eddie Lampert is selling off revenue-bearing (and sometimes profitable) assets (stores) in order to remain liquid.
The maneuver is working too, and SHLD stock is actually up around 50% so far this year. But it’s not a long-term solution, as eventually Sears will run out of real estate and units to sell. The company’s Auto Center business and its Lands’ End division are on the chopping block too. That could certainly provide a temporary boost to future Sears earnings updates … but would also remove some of its more productive business units.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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