High and low end retail stocks, Nordstrom, Inc. (NYSE:JWN) and Dollar Tree, Inc. (NASDAQ:DLTR) are rising on good news while middle market retailer J.C. Penney Company, Inc. (NYSE:JCP) plunges. I know, you’re way ahead of me: Nordstrom is the good, Dollar Tree the better, and J.C. Penney the plug-ugly.
Let’s start with the bad news first. J.C. Penney has a $552 million loss as reported on February 27 for Q4 and same store sales were down 28%. This now makes losses for four straight quarters and CEO Ron Johnson has manned up and said,” We also made some big mistakes and I take personal responsibility for this.” (from Seeking Alpha earnings transcript). That’s cold comfort for shareholders who have a 13% loss after this earnings release.
But as they sing in Spamalot, “..always look on the bright side of life.” On February 27 Dollar Tree, Inc. (NASDAQ:DLTR) reported better than expected earnings beating on both top and bottom line causing the stock to surge 12%. Margins drastically expanded by 16.2% and CEO Bob Sasser raised guidance.
As for Nordstrom, Inc. (NYSE:JWN), it announced an $800 million share buyback to be paid for with cash on hand and raised its dividend by more than 10%. The question now is: is there upside left on the barbell ends of retail and what do you do with J.C. Penney Company, Inc. (NYSE:JCP).
Pull The Plug
Pull the plug on Penney’s. Cut your losses. Bite the bullet. Rip off the Band-Aid. Pick your cliché but do it.
Ron Johnson said on the earnings call that 2013 is going to be the year for J.C. Penney, but that rings hollow to investors who have already endured steep losses (down 45% before the earnings release). Even while I secretly root for this underdog I would not buy the stock. Johnson said on the call the stores are brighter and cleaner and I agree. I’ve said so before. He said J.C. Penney is starting off 2013 with clean inventory and new marketing strategies. At the after-hours price of $18.33 with -$2.31 in earnings you can’t afford to smoke his hopium… not when the short interest at 43% is more than willing to pressure the stock further. Analysts have been taking the name down further with downgrades as they grow increasingly impatient with turnaround plans. Veteran retail consultant Walter Loeb, formerly of Morgan Stanley, said quite plainly in a blistering Forbes column, “We have been had.”
The understatement of the year from the call was, “As we all know, our marketing didn’t connect very well with our customers last year.” In J.C. Penney’s favor they did hire Sergio Zyman from Coca-Cola to head marketing (famous for both successful Diet Coke campaign and New Coke fiasco). They are bringing in new retail partners like Joe Fresh, a hot Canadian clothing brand, Cosabella lingerie, and Nanette Lapore women’s apparel and plan an ambitious opening for their Home department in the spring with the comeback in housing. They have upped their line of credit as well as diversifying lenders.
It sounds so, so good but other retailers are much, much better.
Better Than The Best of the Rest
Dollar Tree isn’t just better than J.C. Penney, it’s better than most of its discount cohort. It’s certainly better than Big Lots, Inc. (NYSE:BIG) and Dollar General Corp. (NYSE:DG) even though the stock performs well (have analysts actually shopped inside a Dollar General?). Dollar Tree, to my mind, ranks right up with Family Dollar Stores, Inc. (NYSE:FDO). If Family Dollar wasn’t a Dividend Aristocrat I would rank Dollar Tree higher than Family Dollar.