Can Investors Still Make Money in Retail Stocks?
Nauman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The world of retail-department stores has changed drastically over the past several years, due in large part to the convenience of online shopping. Gone are the days when the family would pile into the car and spend the day at the shopping mall. In fact today, many once-thriving mall locations are sitting idle and empty and awaiting the wrecking ball.
Is retail shopping as we know it a dying industry?
Over the past decade or so, the continued conveniences of shopping online with click of a mouse (or touch of a screen) have allowed consumers to save a great deal of time and effort in purchasing the items they need.
Yet, some large retailers are continuing to entice customers into their physical locations by offering additional incentives, as well as a pleasant shopping experience. One such retailer is Kohl's (NYSE: KSS)). This corporation, founded in 1962, operates more than 1,100 department stores across the U.S.
In the most recent quarter, Kohl's produced overall sales of $6.3 billion - led primarily by an increase in demand for toys. This made the company's children's segment the strongest-yearly performer. The firm also saw a slight rise in sales in the area of men's and women's sportswear.
One bump in the road for Kohl's came last year when the firm had holiday pricing issues, which ultimately led to a failure in the company's expected seasonal sales. Subsequently, one of its 2013 goals is to remain focused on its pricing strategies.
Although Kohl's sales inched up slightly for the fiscal year 2012, its overall financial performance was marred somewhat due to an increase in costs. This brought the firm's net income down by 15% as compared to the prior year. With this in mind, investors who are seeking growth should be somewhat leery - although the company's still-strong dividend could make a share purchase worthwhile.
Giants no more
Some of the once-giant anchor department stores are losing sales, market share, customers, and profits quite quickly to both online retailers and those with more aggressive pricing techniques.
Recently, J.C. Penney (NYSE: JCP) has seen its share price trading at its lowest level in more than a decade. One reason for this is the issue of company’s top management. Former CEO Ron Johnson, who took the helm less than 18 months ago, saw sales plummet by 25% over the past year as he attempted to try a new pricing strategy. Yet his eventual ouster is still not a guarantee that things will turn around anytime soon.
At this time, J.C. Penney doesn't pay a dividend to its shareholders. And, the stock price of this once-prominent retail giant is trading near its 52-week low - with no real positive developments to speak of that may bring it back up. In fact, analysts estimate that share price will continue to sink over the next year.
Likewise, the long-term story for Dillard's (NYSE: DDS) department stores isn't stellar - although there are some analysts who feel this company could be worth a second look. That's because the company continues to position itself between the likes of high-end stores, such as Nordstrom and Macy's.
Dillard's shares fell by roughly 10% earlier this year following fourth-quarter 2012 earnings results. On that note, the company has brought its earnings growth and gross margin expansion up for the past 10 consecutive quarters. With this in mind, there could be some share growth potential due to the company's efficient operating performance and market-leading benchmarks on store productivity.
As with J.C. Penney and Dillard's, Kohl's will also need to keep using aggressive pricing to keep its sales moving upward. While it may take years for stores such as J.C. Penney to fight back, as long as Kohl's can continue its stellar performance through its online component, it's likely that this company can survive using a combination of Internet and physical techniques to keep customers coming back.
The bottom line
Investors who want to take a chance on the retail department-store industry would be well advised to keep a close watch on current sales figures, as well as each company's future projections. While it's unlikely that investors will obtain a great deal of share growth - at least not in the short term - it is possible that choosing a company such as Kohl's that also pays out a healthy dividend could be somewhat enticing. This would allow at least some return in the form of regular income to an investor.
Nauman Aly has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!