In a blow to bargain shoppers that would have been unthinkable just a few weeks ago, uber-fast growing discount apparel retailer Steve & Barry's is preparing to file for bankruptcy, according to The New York Times. The company has grown rapidly with its 50,000-100,000 square foot stores offering extremely cheap clothing aimed at college students: NBA-star endorsed basketball shoes for $8.98 (Starbury's, shown right), clothing lines endorsed by Venus Williams and Amanda Bynes, and a Sarah Jessica Parker line as well.
The company is reportedly discussing a possible deal with Sears Holdings (NYSE: SHLD), but that company isn't in such great shape either. Steve & Barry's debt load appears to be making a sale impossible without the benefit of a bankruptcy filing.
It's been a rapid fall from grace -- not so long ago, the company was the darling of mall operators looking to fill vacant big box locations. They lured Steve & Barry's with large upfront payments that kept the cash flowing for awhile. But once those were exhausted, the stores weren't profitable enough on their own.
I hold out hope for this company; it's a fantastic idea and, in some form, I think it will live on. It's my hope that at least some of the stores can be salvaged, and if not, there's always the internet. Because of its focus on retail growth, Steve and Barry's currently has no e-commerce site -- none. If someone is able to acquire this one off the bankruptcy scrapheap, I would expect that to change.
Sears Holdings (NASDAQ: SHLD) really blew its earnings numbers. According to Briefing.com, Sears' Q1 adjusted earnings missed by 68 cents. Nope, no beating by the proverbial penny here, folks. Sears was expected to report an adjusted profit closer to 15 cents per share; instead, not the 53 cent loss booked by the retailer. Man, that's bad. Wall Street also expected a better top-line performance. But Sears couldn't come through on that count, either. Net sales for the quarter declined almost 6% to a little more than $11 billion.
But wait, there's more bad news. Same-store sales at Sears took a turn for the worse, diving almost 10%! Comps at Kmart decreased 7%! The gross margin went down! Want more, or is that enough? The Sears story is not a good one. What's going on here? Well, the release does say something about a bad economy, but that isn't a worthwhile excuse. Sears simply needs to apply itself and get traffic into its stores. Use some thinking-outside-of-the-box marketing campaigns to reignite the brand's fire.
Sears Holding (NASDAQ: SHLD) is recently trading up 42 cents to $87.51 as shares near 45-month low.
SHLD is scheduled to release Q1 results on May 29.
SHLD call option volume of 13,028 contracts compares to put volume of 6,312 contracts. SHLD June call option implied volatility is at 51, puts are at 57. SHLD average option implied volatility over the last 26-weeks is 45 according to Track Data, suggesting larger price movement. SHLD puts are priced higher than calls because SHLD is difficult to borrow.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
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?
After hitting a one-year high of $195.18 last April, the stock hit a one-year low of $84.72 in January. This morning, SHLD opened at $102.95. So far today the stock has hit a low of $101.81 and a high of $104.03. As of 11:45, SHLD is trading at $103.74, down $1.42 (-1.3%). The chart for SHLD looks bullish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider a May bear-call credit spread above the $120 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in five weeks as long as SHLD is below $120 at May expiration. Sears would have to rise by more than 16% before we would start to lose money. Learn more about this type of trade here.
SHLD hasn't been above $120 since November and has shown resistance around $110 recently. This trade could be risky if earnings from other retail companies are a positive surprise, but even if that happens, this position could be protected by resistance SHLD might find at its 200 day moving average, which is currently around $120 and falling.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SHLD.
This year, the International Trade Commission is set to issue rulings on whether Samsung and Nokia Corporation (NYSE: NOK) have infringed patents from InterDigital Inc (NASDAQ: IDCC). If InterDigital, who licenses its patents to iPhone maker Apple Inc (NASDAQ: AAPL), wins, fees from the deals could double its revenue over the next few years, the Wall Street Journal contended.
According to FDA commissioners, the New York Times reported that Baxter International Inc's (NYSE: BAX) critical blood thinner heparin, which has been linked to nearly 20 deaths and whose base was created in China, contained a "possibly counterfeit" ingredient that "mimicked the real drug."
In his opening arguments in the state of Alaska's lawsuit against Eli Lilly & Company (NYSE: LLY), an attorney for the state alleged the drug maker failed to warn doctors and patients of dangerous side effects associated with its drug Zyprexa, the Associated Press reported.
The retailer announced that its quarterly profit dropped to $426 million, or $3.17 a share on declining margins as sales at its Kmart and Sears stores slipped due to the weak U.S. economy and increased competition. These numbers are down from $811 million, or $5.27 per share reported in the same period a year ago.
Included in the company's earnings numbers was a one-time gain related to the sale of some assets. Excluding that, Sears earnings numbers would have come at $3.04 per share. Analyst estimates (which typically exclude one time items) was for $3.10 per share in the quarter.
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.
The Wall Street Journal reported that IAC/InterActiveCorp's (NASDAQ: IACI) CEO Barry Diller is in talks with outside investors or possible buyers for all four companies that he plans to spin off, according to a person familiar with the situation.
According to a source close to Yahoo! Inc (NASDAQ: YHOO), CEO Jerry Yang has decided to go forward with layoffs at the company. The source said that the layoffs will come in the 1,500-2,000 range instead of the "hundreds" reported elsewhere, the Silicon Alley Insider reported.
A look at the company's same-store sales, a key indicator of retailer performance that measures growth at existing stores, reveals a decline of 3.5%. Sears saw its domestic same-store sales fall during the holiday season, hurt by weakness in Kmart's seasonal categories and its apparel and tools. According to the retailer, Sears domestic same-store sales fell 2.8%, while Kmart same-store sales tumbled 4.2%.
Sears believes its weak holiday sales and lower profit margins were caused by strong competition, the slumping housing market and credit crisis which increased consumers' fears and made them curb their spending.
Sears Holding (NASDAQ: SHLD) is recently down $10.42 to $85.75 in pre-open trading.
SHLD guided fourth-quarter and year earnings below expectations on a decrease in same-store holiday sales, lower profit margins, increased competition and unfavorable economic conditions.
SHLD overall option implied volatility of 55 is above its 26-week average of 42 according to Track Data, suggesting larger risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Sears Holding (NASDAQ: SHLD) is recently down $5.25 to $91.14. SHLD call option volume of 22,045 contracts compares to put volume of 31,005 contracts. SHLD January 90 straddle is priced at $8.60. SHLD February call option implied volatility is at 55, puts are at 67, above its 26-week average of 41 according to Track Data, suggesting larger risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Sears Holdings (NYSE: SHLD), which has been lately for poor quarterly results, said this week that it will reduce the use of Polyvinyl Chloride (PVC) from plastic packages in its stores.
Sears said that it has adopted a policy of identifying more sustainable choices for product packaging in an effort to reduce "environmental risks tied to the manufacture, use and disposal of PVC."
Kudos to Sears here. However, if this story is being pitched as a good piece of PR in a year filled with performance disappointments from the retailer, why now? Chairman Eddie Lampert has lashed out at critics who continue to complain about the horrid retail performance of the combined Sears/K-Mart, although Lampert's use of Sears Holdings as a cash-flow company (as opposed to a retailer) is still under review by the market -- and misunderstood, according to many.
Regardless, every retailer should look at alternatives to PVC for all those hundreds of millions of plastic packages that eventually end up in landfills. Packages that break down naturally should be the packaging material of choice, and when Sears makes this kind of commitment, other retailers should follow. A press release from an under-performing company may be worth more as a motivator to other companies than as a rescue effort for the company's sullied reputation.
Recently 24/7 Wall St. ran a list of CEOs who may need to go back to business school. The performance of their companies has been so poor that they need a period of re-education, some tutoring in the basics.
But, it is time to add a few more names to the list.
Starbucks (NASDAQ: SBUX): These shares are now off to $22.49, near a 52-week low. The shares have a period high of $37.14. James Donald has the CEO job at Starbucks, but the founder Howard Schultz is still around. Wall Street could certainly argue that the company has made a lot of mistakes starting with overbuilding stores in the US. Another is that the new menus in the stores seem to be have been decided by random. If the company cannot improve same-store sales soon, the stock will go lower. This seems basic, but SBUX has not given shareholders any plan for addressing it.
Blockbuster (NYSE: BBI): It is hard to have blown the lead that Blockbuster had in movie distribution. But it did. CEO James Keyes does not seem to have any logical vision about how to solve the company's problem, which is that digital distribution has passed it by. He argues that customers will go to kiosks at Blockbuster stores to download movies. Instead of doing it at home on the internet? Or getting the DVD in the mail? Not much of a plan.
Sears Holdings (NASDAQ: SHLD): The name on the CEO's door at Sears is Aylwin Lewis. But Eddie Lampert is the chief. The marriage of K-Mart and Sears has been a disaster. Same-store sales at both companies run below the industry average. It would be very hard to argue that the merchandising programs at the retail outlets is compelling enough to bring in new customers. Lampert exhibited poor judgment in sending out a letter that was picked up by the press. His defense of the company was that it had reduced debt and bought back shares. That will help a lot when his stores are empty.
Douglas A. McIntyre is an editor at 247wallst.com.
Not so long ago, Sears (NYSE: SHLD) had become something of a value glamor stock. Journalists waxed about hedge fund manager-turned-Sears chairman Eddie Lampert's plan to turn the company into an investment vehicle -- comparisons to Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) were ubiquitous.
After yet another terrible quarter, Sears is down nearly 50% from its 52-week high, Herb Greenberg has even suggested that CEO Alwyn Lewis could be shoo-in for his Worst CEO of the Year Award.
Lampert's reputation as Sears chairman has gone from the penthouse to the outhouse pretty quickly, and he's not too happy. In fact, he's lashing out at critics. In a letter to employees on Friday, he wrote that: While we were not pleased with these results, much of the commentary in the media and on Wall Street following the results ignores the strength of our company and the progress that we have made . . .
In a blow to bargain shoppers that would have been unthinkable just a few weeks ago, uber-fast growing discount apparel retailer Steve & Barry's is preparing to file for bankruptcy, according to The New York Times. The company has grown rapidly with its 50,000-100,000 square foot stores offering extremely cheap clothing aimed at college students: NBA-star endorsed basketball shoes for $8.98 (Starbury's, shown right), clothing lines endorsed by Venus Williams and Amanda Bynes, and a Sarah Jessica Parker line as well.
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Sears Holding
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