Sell These Stocks Immediately
These retailers can’t seem to get their reluctant customers to open their wallets these days. When they do, they want big discounts. That makes it difficult for the companies to achieve real earnings growth in the current environment
Children’s Place Retail Stores (PLCE) has a tough road ahead as it tries to compete with improved discount children’s merchandising from Wal-Mart (WMT), Target (TGT), J.C. Penney (JCP), Sears (SHLD), and even Costco (COST). Children’s Place is also susceptible to higher cotton prices and then there’s the danger of discounting to move inventory, which eats away at margins.
Radio Shack (RSH) is another business struggling with competition from giants like Amazon and Best Buy (BBY). The company met analysts’ expectations in its fourth-quarter report, but that came on the heels of four straight earnings misses. Part of the problem is that a higher percentage of the company’s sales have come from mobile products, which carry very low margins, and changes at Sprint have also impacted results.
There’s a lot of moving parts in perhaps the company’s most important division right now, and I would stay away from the stock until there’s a clearer picture of where the company is going.
Sales and profits at Sears Holdings (SHLD), which also owns Kmart, just keep dropping. With poor customer service and concern about the quality of their appliances and other one-time A-level items, the retailer is on a bad downward path.
Analysts and traders have speculated about the fate of SHLD since Lampert combined Sears and Kmart in 2005, and investors have endured wild swings in the stock. Ultimately, I see Sears as unable to make it.
CEO Eddie Lampert has been scrambling to raise cash and calm investor fears, and he does have a history of temporarily igniting investor interest from time to time. To stay afloat with enough cash flow, Sears has been trying to sell off or spin off its stores. One well-respected Wall Street analyst called the process “a controlled liquidation of its chain,” and I agree. The chain plans to sell 11 stores and spin off its Sears Hometown among other efforts that are expected to add about $1 billion to the company’s coffers.
While the move put rumors of bankruptcy to rest, Sears, in the end, looks on a path to fall short of money again. After all, it was only two months earlier when it secured $350 million by closing up to 120 Kmart and Sears stores and reducing inventory. You can’t run a business by selling off assets. Sears needs to address fundamental problems and find a buyer that can provide synergistic upside.
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