The Harsh, Brutal Reality About Sears
Read this bit of PR from Sears (SHLD) CEO/money manager/failed strategy man Eddie Lampert to employees and you would think the former retail icon is crushing it. "We are encouraged by the progress we are seeing and remain committed to our strategy to restore Sears Holdings to profitability so we can continue to serve our members for years to come," Lampert said in a blog post after releasing "earnings" on Wednesday. Review Sears' financial filing, and a person with an untrained eye would think, "Heck yeah, Sears is going to pull off the miraculous recovery Toys 'R' Us and Circuit City couldn't." But as TheStreet dove into Sears' results (on our 12th cup of coffee for the day), one thing became clear again: Sears will have a hard time surviving beyond holiday season 2018. Now, yours truly is on the record all over Google (watch this segment from 2014 here) as saying Sears wouldn't survive beyond 2017. I continue to be amazed by the financial wizardry Lampert and his revolving group of execs pull off. That said, the financial magic can't go on forever -- after a while a company like Sears just runs out tricks and things to monetize. The company's core business is now fully engulfed in the death spiral that I laid out in 2014, and with that comes a quicker pace of cash burn and even more concerned suppliers. We all have an idea what happens next.
A Dangerous Thing Is Happening in U.S. Retailing
As someone that enjoys visiting closed retail stores to take photos, I am not happy about the Toys "R" Us bankruptcy and liquidation. Even though Toys "R" Us failed to evolve, it continued to offer the best selection of toys in a physical space -- Walmart (WMT) and Target (TGT) just aren't toy specialists. People will now be forced to take a risk that a toy isn't a choking hazard when buying it online instead of seeing it up close and personal and that's unfortunate. But it's a reality that I was reminded of while watching my 2015 interview with Toys "R" Us CEO David Brandon. The embattled toy CEO -- and former Domino's Pizza CEO -- flat out said his stores were too large and that adjustments needed to be made in order to overcome shifts in how people shop. He was unable to get the job done, as will likely be the case for many execs at troubled retailers. With a fresh round of thinning out the weak hands in retail underway, consumers will essentially be left with three or four main places to shop: Walmart, Target, Action Alerts Plus holding Amazon (AMZN) and maybe a combination of Macy's (M) and Kohl's (KSS) . I am still not convinced Best Buy (BBY) will be a player in the new age of retail looking out 25 years. The power is being concentrated in the hands of the few with the biggest wads of cash to reinvest in their transformations, which sets the stage for a sector with impressive pricing power at some point in the future. Get ready for $50 underwear, folks. And if you own shares in either of these names, get ready to cheer.
On a Happier Note
For new readers of Jolt we aren't normally this gloomy. So here is an upbeat stat on the increasingly volatile stock market. The Russell 2000 has pulled ahead of the Russell 1000 during the past 30 days and so far in March, pointed out FTSE Russell (the Russell 2000 has risen 5.2% in March vs. 2.2% for the Russell 1000). I guess investors didn't get the memo a trade war was brewing.
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