Was it Really Black Friday for These Retailers?

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

Black Friday has different meanings for different people around the United States.  For some, it means the day where there are once-a-year deals at their favorite stores that are not seen any other time of the year.  For others, it means the most violent shopping day of the year as you try to defend yourself and your merchandise from out-of-control shoppers wanting what you have in your cart and more.  For theorists, it means the day (or weekend) where many retailers go black and make a profit after operating at a loss for most of the year.  However, is it really Black Friday anymore for the following popular retailers or is it just another day and more of the same?

Express 

Express (NYSE: EXPR) seems to be on sale every day of the year – and it just might be in actuality.  If you look on their website today you will see a ‘buy 1, get 1 half off’ deal, ‘take an extra X% off’ deal, and the classic ‘save as much as $60 if you spend $150’ deal.   So Black Friday comes along and you get similar deals.  What is somewhat hilarious is that they state ‘deal ends today’ when in fact any regular of the store knows a new one will be back tomorrow. 

What tends to happen as a result to these everyday deals or steals is that the company begins to devalue their merchandise.  Why would anyone pay the regular prices when they can easily wait a couple of days, or even tomorrow, for the routine sale to arrive?  In the past year, Express’ share price has fallen over 35%, and since going public in 2010, after Limited Brands gradually transferred ownership to Golden Gate Capital Partners, over 18% overall.  What is even stranger is that as of today, neither Limited Brands nor Gold Gate Capital Partners has any relationship or ownership with Express.  Maybe they don’t see the value in Express either?

In the past year, profit margins for Express have fallen by over half from 8.97% in January to 3.48% as of last earnings in July.  Perhaps it is the everyday sales that have been going on more and more often eating through profit margins and hitting the bottom line and consequently share price? 

This week, Express is due to report earnings.  Last year’s earnings for this quarter’s period were estimated to be $0.35/share and Express beat it by two cents.  Analysts have estimated this coming quarter’s earnings to be just $0.17/share – less than half compared to a year ago.  Expectations are low so there is actually a small chance for a surprise on the upside.  Express just might be on sale now.  

<img src="http://media.ycharts.com/charts/cd359df0333e3c68f36332bfd773a03b.png" />

EXPR Total Return Price data by YCharts

Best Buy

I was leaving a Thanksgiving dinner Thursday night and out of curiosity, I drove by the local Best Buy (NYSE: BBY) to see how far the line stretched out the door.  If I knew nothing more about the company than what I saw when I drove by, I would think Best Buy is a store making a ton of money annually and even more on Black Friday with a line that wrapped around the building and a dedicated parking across the street used for incoming customers to park and wait in the freezing temperatures outside the store.  That couldn’t be further from the truth.

Best Buy is a worst buy for shareholders at it has declined in share price over 50% the past year, and over 73% the past 5 years.  Their quarterly revenue year-over-year growth is -11.12% and in the past two quarters they shocked analysts to the negative with surprises of -35.5% (July) and -75% (October) of this year.  The past 2 years are even more startling as they went from having a net income to common shares of $1.277 billion for fiscal year 2011 to -$1.231 billion for fiscal year 2012.  Talk about swings. 

In my opinion, Best Buy is doomed long-term as a stock.  Recently, it has seen downgrades or neutral ratings from RBC Capital, Wedbush, Jeffries Group, TheStreet, Barclays, Piper Jaffray, and Zacks.  Some of these analysts, however, and others now have buy ratings all of a sudden.  It is hard to understand where these investment institutions are coming from and whether they have stepped into a Best Buy on a day other than Black Friday lately. 

<img src="http://media.ycharts.com/charts/bb99e30b9b21a919537f46929e1d7015.png" />

BBY Net Income TTM data by YCharts

J.C. Penney

In February of this year, J.C. Penney (NYSE: JCP) apparently was inspired by Wal-Mart’s business strategy and implemented “Every Day Low” prices for merchandise that used to be considered sale prices.  Year-to-date, the stock has fallen over 50% so it doesn’t look like it is working too well.  In August of this year, J.C. Penney also implemented a Shops strategy for their already maze-like stores by creating stores-within-a-store.  It looks like the company strategy now is to keep customers stuck in their stores long enough for them to eventually buy something.  To add to the new strategies, amnesia appears to have inflicted the company since they have now have used three different logos since 2011.

J.C. Penney looks to be worse off than any other retailer today.  Their quarterly revenue year-over-year growth is -26.57% and their profit margin have been negative since mid-2011.  In the services sector, the company falls in the 15th percentile coming in at 717th out of 847 stores considered to sell services.  There are no bright sides to the story as comparable store sales decreased 21.7%, gross margin decreased 510 basis points, and they continue to burn through cash. 

The EPS average estimates for the next earnings date for J.C. Penney have dropped from $1.04/share just 90 days ago to just $0.20/share – which in my opinion is still too high of an estimate considering the last three quarters have been increasingly negative.

Finally, the last indicator I have used myself is asking where my parents and older relatives now shop.  What used to be a weekly or at least monthly routine visit to J.C. Penney is no longer for them.  Their issues revolve around sales with fine print that creates exceptions on most merchandise and the lack of customer service. 

<img src="http://media.ycharts.com/charts/32ad20094b3fd9628a27ce39499a6e0c.png" />

JCP Total Return Price data by YCharts


mikecart1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy. Motley Fool newsletter services recommend Best Buy. 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!

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