Sears Holdings Corp (SHLD), RadioShack Corporation (RSH): Low-End Retailers Deliver Low-End Results

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Action to take

Sell this security if you still own it, or consider shorting the stock even at these levels. With the holiday season looming, RadioShack Corporation (NYSE:RSH) has announced it will try revamping stores to give it, “a focus more on digital fitness and accessories,” according to a July 23 headline from the
Associated Press.  With the $713 million in debt (over twice its market capitalization), a lot of digital fitness and accessories need to fly off of the shelf in order to keep this company alive.

J. C. Penney may just be worth one penny.

This retailer has had its issues in the past (it’s a volatile stock) and pundits galore all the while. It has done an excellent job in keeping critics happy as J.C. Penney Company, Inc. (NYSE:JCP) has continued to deliver less-than-impressive business performance.

Revenue has shrunk from $17.5 billion in 2010 to $12 billion in fiscal year 2013 ended Feb. 2. Profit margins steadily declined from 39.4% to 31.3% along with diluted earnings per share of $1.07 shrinking to a loss of -$4.49 per share over the same time period.

J.C. Penney Company, Inc. (NYSE:JCP) is investing heavily into restructuring its supply chain, store outfitting and fixtures, and leadership amounting to over $70 million. Management has led us to believe the turnaround will take several quarters, but with a debt load of $3.8 billion, it will take much more than just an incremental investment into infrastructure and new talent.

Action to take

Out of all the stocks mentioned here, J.C. Penney Company, Inc. (NYSE:JCP) isn’t one I would immediately sell (or short). Analysts do have this company close to breaking even in fiscal year 2016. Should we see the numbers begin to accelerate before then, I would opt to buy the stock at that point. This upcoming holiday season is very important for its future, so my advice is to be cautiously optimistic about this stock and enter in only if management shows signs of improving to beat consensus estimates.

Conclusion

The tides of popularity have ebbed against Sears, RadioShack Corporation (NYSE:RSH), and J.C. Penney Company, Inc. (NYSE:JCP). The faded branding of these three companies has certainly led to their lackluster sales and stock performance. Although they may make for great turnaround stories, your investment dollars are well suited elsewhere.

Michael Mandala has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Low-End Retailers Deliver Low-End Results originally appeared on Fool.com is written by Michael Mandala.

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