Penney (J.C.) (NYSE: JCP) is a little timid right now in the face of the recession. According to this AP piece, CEO Mike Ullman, speaking at an analysts' meeting, is reducing the number of new locations he plans to debut this year -- look for 36 instead of 50. The CEO said that he doesn't like the unpredictability that currently exists in the macroeconomic world.
He's right to be careful. Consumer confidence might head lower from here. And considering that J.C. Penney reported terrible comps for March -- the retailer saw a decline of 12.3% -- now is probably not the time to be in expansion mode. Instead, management needs to figure out how best to connect with the mall traffic. This will necessitate new marketing campaigns that aggressively promote the brand and the shopping experience, and differentiate the chain from competitors such as Sears (NASDAQ: SHLD) and Macy's (NYSE: M). Retailers, in my opinion, often underestimate the value of investing in creative campaigns that focus more on the experience a consumer receives when he or she is in the store rather than the perceived value that a consumer has regarding the inventory portfolio.
In terms of investment potential, J.C. Penney is not a retail company that I'm seriously looking at right now. I'll wait to hear more financial updates from management; it isn't expensive at the moment, and it is certainly eons away from its 52-week high, but I just don't have a good feel for its growth potential yet. Interestingly enough, I wrote about American Eagle Outfitters (NYSE: AEO) the other day, another cheap retail stock; both J.C. Penney and American Eagle Outfitters might be considered similar stories in terms of valuation, but for me, I find American Eagle to be the more attractive candidate from a brand viewpoint and in terms of bouncing back big when the economy improves (that's my current outlook, at least). We'll have to wait and see how this mall story evolves.
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
In a story posted by The Consumerist, an eloquent and apparently intelligent gentleman referred to as Tom, relates a story of turmoil which he has experienced with a Sears Card purchase he made at Sears Holding Corporation (NASDAQ: SHLD). The story goes like this:
Tom states that he purchased a television from a Sears store. It was a deeply discounted model, at a price he couldn't refuse. Tom apparently paid for his purchase with his Sears Card and then went out of town. Upon return from his trip, Tom called Sears to see when his new television would be delivered. It wasn't available. He would have to wait. Another week passed and Tom contacted his Sears retailer again. They still had no television to deliver to him, so after a terse verbal tug-o-war with the manager, Tom was offered an alternate television at a similar discount. He purchased the surrogate unit and left the store satisfied. However, Tom's problems had only just begun.
It seems that Tom has been unable to recover the funds he paid for the television which Sears couldn't deliver. Try as he might, the best Tom has been able to accomplish has been a serious test of his fortitude. He's hit dead ends from one end of the Sears operation to the other. He has been able to reasonably ascertain that Sears management's telephones don't interlink with one another. Meanwhile, the phantom television model remained on display in the store. Might this possibly have been in violation of consumer bait and switch laws?
When Edd Lampert merged K-Mart and Sears Roebuck into Sears Holdings Corp. (NASDAQ: SHLD), he probably didn't plan for a complete and unmitigated disaster. But, from all accounts, that is what the company is at this time. Its sales have consistently plummeted for more than just a few quarters now, the competition has killed it. Sears merchandising frankly is really, really bad -- and on and on.
Lampert's grand vision is still alive, but the realities of running a national retailer in an intense environment have not proved easy at all. What's keeping Sears Holding's shares above $100, you say? Check out the company's vast real estate holdings. Don't think for a second that this isn't the reason Sears is majority owned by Lampert, who could care less about the retail end of the business.
Still, you have to run a business. It's always nice to see that a former CEO who appeared to do virtually nothing in terms of performance get an annual base salary of $1 million through the next few years -- even though he's no longer at the company. Ousted CEO Alwyn Lewis, who was highly regarded when recruited for the Sears Holdings CEO spot but who was wholly ineffective, will receive his salary package through March 24 of 2010. Lewis will also continue to have health and welfare plan availability along with having his remaining stock and option awards vest until 2010 as well.
Even though the boards of public companies should be completely separate from the management and owners of the company, it's hard to see that they're not when excessive, after-term packages like this come to light. Pay for performance? Hogwash. CEO compensation committees can be as corrupt on company boards as those Enron folks from years back. Well, to a degree, anyway.
The upscale retailer has embarked on an aggressive store expansion. The company will add 1.11 million square feet in 2008, more than twice that which was added in 2007. With that expansion in square footage has come an commensurate increase in short sales volume (those sold with the intention of betting on the stock price decreasing in JWN).
Analysts are fearing that while Nordstrom may have it going on in terms of hitting the fashion bulls-eye, such aggressive expansion may negatively affect the company. The same Bloomberg story quotes a Wall Street analyst who said that "slowdown in square-footage growth'' would make her more positive on the Nordstrom story.
Much as an astute investor in the stock market would use price pullbacks to add to positions he or she likes, Nordstrom is leveraging cut-backs in store expansions at competitors to land what it feels are prime locations for new stores.
With fears that the U.S. consumer will suffer more than he is presently, investors are nervous that store expansion may leave Nordstrom with a lot to sell and not a whole lot of buying going on.
Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.
TheStreet.com's Jim Cramer says it could be part of a strategy to pounce when the economy sagged. Lowe's can take the pain; Home Depot can't.
Maybe Lowe's (NYSE: LOW) (Cramer's Take) sees what we saw this morning: A Home Depot (NYSE: HD) (Cramer's Take) that's a shadow of its former self. Maybe LOW is pulling a Verizon (NYSE: VZ) (Cramer's Take) and just going out to destroy the competition with lower rates and short-term hits to performance.
Yesterday I was torn between what really drove up the price of Lowe's: the January low point with February showing some improvement, or an overall belief that the early cycle is starting and the economy has bottomed courtesy the Fed rate cuts. The reaction last night to Nordstrom (NYSE: JWN) (Cramer's Take) was similar: terrible earnings but hope that things will get better. It's is now well above where it hit its low and it is hard for me to believe that it could go back there.
You couldn't tell which theory was winning out for either Lowe's or Nordstrom because I am sure you had buyers of both plus the ubiquitous short-sellers who lurk everywhere and are prone to cover on a moment's worth of positive price action (as we saw in Goldman Sachs (NYSE: GS) (Cramer's Take) yesterday before a new round of estimate cuts, courtesy special purpose vehicles that some alleged cognoscenti will claim they saw coming).
Super-investor Eddie Lampert has cut his stake in Citigroup Inc. (NYSE: C) by 31%, leaving him with a position of 19.1 million shares valued at a little under $500 million. It is likely that Mr. Lampert sold the shares at a substantial loss.
Lampert's large presence in the stock was a source of confidence for battered bulls who watched the stock decline through subprime write-downs and a managerial shake-up. Long considered to be one of the great value investors, Lampert's latest 13-F filed with the SEC shows stakes in Acxiom Corp. (NASDAQ: ACXM), AutoNation Inc. (NYSE: AN), AutoZone Inc. (NYSE: AZO), Citigroup, Home Depot Inc. (NYSE: HD), and, of course, Sears Holdings Corp. (NYSE: SHLD).
Lampert's decision to cut his stake in Citi has to make investors nervous. He's ridden the stock down for months, and it hasn't exactly been rebounding.
Last year was tough for Lampert, with Sears' stalled turnaround bringing him poor returns and the worst publicity of his career.
Eddie Lambert may have to loan Sears Holdings (NYSE: SHLD) some money. Cash at the company be getting very tight. According to the Wall Street Journal, "some analysts wonder whether falling sales, slimmer profit margins and other woes are causing cash flows to decline to a level that could hinder a turnaround."
The last cash balance that Sears announced was lower than most analysts expected. If the company needs to spend money to improve its stores or increase inventory in products it thinks will sell well, it could draw down the cash level even further.
For Lampert, the bad news keeps getting worse. Sears stock has staged a mini-rally over the last two weeks, moving from below $85 to $103. News about cash problems could push the shares back down.
Lampert made the classic error of thinking that with Sears and K-Mart 1+1=3. In reality, he took two weak companies and saved some money in a merger. The problem was that the companies got even weaker.
Who says that hedge fund managers don't make good corporate chiefs?
Douglas A. McIntyre is an editor at 247wallst.com.
In the past couple days, there have been two indications that Sears Holdings (NYSE: SHLD) chairman Eddie Lampert realizes that his strategy to turnaround the company is failing, or at least flailing. First, CEO Aylwin Lewis resigned with the treads of Lampert's shoes implanted firmly on his backside.
Now, Lampert is giving up his own role in the day-to-day operations of the company, a sign that he is now aware of what most people have been aware of for a long time -- what the New York Timescalls his "prickly personality and a hands-on management style" are not good for the company, especially given his utter lack of retail experience.
But the problem for Sears is two-fold: First, any real turnaround for the retail operations will require Lampert to loosen the purse-strings. Secondly, Sears needs better managerial talent.
As Herb Greenberg pointed out yesterday, "Lewis is being replaced by Bruce Johnson, who is head of the company's supply chain and operations. That Lewis is being replaced, even on a temporary basis, by someone with a background in supply management, and not a merchant, shows how shallow the depths are within Sears of true merchants/retailers."
Perhaps Lampert's decision to step aside from the management of the company will help lure in elite retail executives. Lewis's departure and Lampert's reduced role have to be seen as big positive for for Sears shareholders. Now all they need is for Lampert to spend the money to modernize an aging store base.
Quoted in a piece in the Sunday New York Times, Bruce Greenwald (author of the terrific Value Investing: From Graham to Buffett and Beyond) sums up Eddie Lampert's problems at Sears Holdings (NYSE: SHLD) beautifully: "He did really well on Autozone. Most of his stocks are retail stocks, and he has done really well with them. So he decided he was a genius at retail, and it didn't occur to him he could be wrong about it. He believed his own press."
I would argue that the problem might even run deeper than that: Lampert wanted to be seen, and to see himself, as more than just a great investor. He wanted to become a great manager.
It's somewhat similar to former all-star slugger Jose Canseco, who decided he wanted to try pitching. He promptly injured his arm and missed the rest of the season. His attempt at pitching hurt him as a hitter.
Lampert's fall from grace has been steep and rapid. We used to talk about how shares of Sears were trading at a "Lampert premium," based on the idea that his investment prowess would lead to great returns on capital for the struggling retailer.
Now, with Herb Greenberg recently having named him the worst CEO of 2007, shares of Sears are trading at a Lampert discount and are, according to many, currently valued at well below the company's break-up value. There may be value to be had in Sears, but Lampert's struggles provide an important lesson for investors: great investors aren't necessarily great managers, but, like Carl Icahn did with TWA, they might not be able to help themselves from giving it a try.
I wrote a couple weeks ago about a very serious issue with Sears.com's privacy policy. It seemed that Sears Holding Corp. (NASDAQ: SHLD) had a major issue with their online offering. Sears has finally taken the issue seriously and disabled the bug in their how-to-figure-out-how-much-your-next-door-neighbor-paid-for-his-plasma-TV search function on the Sears website.
This morning, WSJ.com reports (subscription required) that an ex-Microsoft (NASDAQ: MSFT) executive is being appointed head of Sears' newly formed online division, one of five such divisions the retailer is forming as part of a turnaround. The article says that James Barr, a 12-year Microsoft executive and general manager of MSN Shopping and Marketplaces, will take over the online unit effective Feb. 2 as a senior vice president of Sears Holdings.
Barr joins former Walmart.com executive, Neil Day, the newly-named Chief Technology Officer for the Sears.com group.
These changes are being made by Chairman Eddie Lampert as he tries to boost sales and stave off further profit losses.
It appears one of my personal favorites, LandsEnd's, LandsEnd.com, will not be part of this unit, which will include Kmart.com and Sears.com.
Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds no positions in stocks mentioned above.
Sear Holdings (NYSE: SHLD) has been trying to solve the problems that have brought down its share price by almost half over the last year.
Perhaps the company cannot solve its retail problems quickly, but it may be able to get some money for its real estate.
Eddie Lampert may simply dump the real estate under his stores. According toThe Wall Street Journal, the company "may sell some or all of the roughly 765 company-owned Sears and Kmart locations to raise capital and then lease them back from the buyer."
This is a perverse sort of way to get up the value of Sears because it has nothing to do with the company's real business. It would also seem that if Sears would simply make clear the value of its underlying real estate in public filings, Wall Street would understand the intrinsic value.
Lampert may want to do an investing road show to promote the value of Sears real estate. He is not much of a retailer, so it could take up some of the time he has on his hands.
Douglas A. McIntyre is an editor at 247wallst.com.
I like Eddie Lampert and I like those Sears stores. I like Craftsman tools and I (sort of) also like the Kmart part of Sears Holdings (NYSE: SHLD).
For those who might be confused as to what Eddie is doing with his potential company "break up," he's taking a distressed operation and laying it directly at the feet of the rubes who have screwed it up. It's a tactic that I myself would employ. Eddie Lampert is the somewhat silent watchful type, observant to a fault. He's a "big picture" thinker in the classic style. He plans and plots and weighs. Yeah, that's the ticket.
You see, Eddie "Golden Boy" Lampert isn't the kind of fellow who'll just blindly clear the decks of seasoned personnel in an effort to generate profit. If such were the case, we'd have seen way more of those pink slips flying long before now. I believe that by fracturing the company structure and by giving more divisional independence, he is now setting the stage for some timely and precise head-chopping down the road.
Eddie Lampert, worst CEO of 2007? Not in my book, not by a long shot. Yes, perhaps if you measure things strictly in growth dollars, Sears Holdings looks pretty ugly right now, but there's far more to the retail game than just rapid growth. Give the man some time to reveal his hand, one carefully picked card at a time. Besides, Eddie Lampert doesn't hold much regard for judgment by share price alone, and frankly my friends, neither do I.
In a story posted by 
When Edd Lampert merged K-Mart and Sears Roebuck into 
Super-investor 
I like Eddie Lampert and I like those Sears stores. I like Craftsman tools and I (sort of) also like the Kmart part of 
Comfort Zone Investing: One thriving area of real estate: Apartments
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Nordstrom and Kohl's post smaller-than-expected Q1 profit declines
