Frankenstore:Scary!!!!!

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

What's a Frankenstore, you ask? It's a mash (a monster mash, if you will) of merchandise and holdings that are held together with nuts and bolts that doesn't really work that well, like Frankenstein's monster. The doctor was actually Frankenstein and his creation was the monster that he reanimated from graveyard bits and pieces along with the addition of the"bad brain" that he had to use when assistant Fritz dropped the"good brain."

If you invest in one of these misbegotten stores you'll feel like hauling out the pitchforks and torches. Why would anyone buy Sears Holdings (NASDAQ: SHLD) at this point? Sears Holdings owns Sears and K-Mart stores with 2,172 US full-line stores and 1,338 specialty stores and 500 in Canada. They also own some floor covering stores and websites. Sears, with its appliances, auto department, tools, Land's End clothing, Canyon River Blues and small selection of regular department store type offerings is a one-stop shop but for what exactly? Home Depot, h.h.Gregg, and Lowe's offer better deals on appliances. Home Depot and Lowe's also have tools covered and the rest of the offerings are only ho-hum. KMart is hardly better. It's like the Bride of Frankenstein with boring brands like Jaclyn Smith and the layaway policy, while welcome for some shoppers, has a minimum of $300 to qualify. KMart shoppers may struggle to meet this minimum.

Sears is closing 11 stores within the next few months. I'm sorry for the approximately 1,000 jobs lost. Hopefully they can get new jobs at J.C. Penney (NYSE: JCP), Wal-Mart Stores (NYSE: WMT), Target (NYSE: TGT), or Macy's (NYSE: M), any one of them a better retailer. I just hope they don't go from the frying pan into the fire by getting a job at KMart. KMart is the closest store that I can liken to the dismal  E.J. Korvettes discount stores which closed in 1980 and Sears is like Montgomery Ward. (For your amusement I've included a link to a Julie Newmar commercial for Korvettes. Can you believe the prices?!)

Reading the history of Montgomery Ward as it battled Sears for over a century and finally conceded defeat by filing Chapter 11 in 1997 is saddening. The once great retailer now has 400 stores and is privately held. Its challenge began during a nationwide depression in 1891 when Sears & Roebuck founder Richard Sears started advertising the Sears slogan,"We always undersell." Now Sears is facing the same competitive challenge that brought down Montgomery Ward; electronics and appliance specialty stores, clothing and home fashion specialty retailers, and the aforementioned Target, Macy's, J.C. Penney, and Wal-Mart. They can't undersell Wal-Mart or dollar stores; they don't have that kind of juice with suppliers anymore.

Sears Holdings has a -26.98 P/E and even at its 52 week low of $28.85 is scary. I could throw more numbers out on Sears Holdings and they're all frightening. Total cash of $730 million to $3.30 billion in debt, return on equity of -43.33%, the stock down 25% over 52 weeks, -6.81% profit margin, and the only positive number is a 38.80% short interest. Analyst opinion is overwhelmingly bearish. It seems they may have actually gone to shop at the stores. Their highest price target is $25 and the lowest is $7. With the stock trading in the sixties could you stand a 90% loss? Inga, where's my pitchfork?!

I hate shopping at Wal-Mart and much prefer Target but you can't deny Wal-Mart is a better big-box discounter stock as is Target. As I said Wal-Mart has the buying power that Sears had in the last century's beginning. Wal-Mart is close to its 52 week high, has a 2.10% yield, and a 15.88 P/E. Wal-Mart reports November 15.

If I was to go the Peter Lynch route I would prefer Target and/or Macy's, both better shopping experiences. Target also reports November 15, has a slightly higher yield of 2.30% and a lower P/E of 14.46. Their merchandise is similar in quality to Macy's and the designer collections are intriguing for individualistic shoppers that don't want to sport a Wal-Mart look. One other thing I like about Target is they have much better customer service than Wal-Mart. As for Macy's it's had a very big move this year but with a 12.23 P/E and a 2% yield it looks like a bargain. Its's reporting on November 7.

Also reporting on November 7 is J.C. Penney which seems to be turning itself around and challenging the others with their shop within a shop (a concept that Montgomery Ward actually popularized). J.C. Penney on numbers alone with a negative P/E of -2.51 is still a "show me" proposition.

Meanwhile, Sears Holdings still shambles along direction-less, dead to all appearances, with numbers that would frighten even little children. It reports November 12. Just stay away and let the shorts poke at it. Even if you only saw the movie or read the Cliff's Notes you know the moral of the story..yes, reanimating the lifeless is a task best left to a higher authority. 

 


leglamp has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Wal-Mart Stores. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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