as part of our
This is the time of year for giving thanks, and we all have
quite a bit to be thankful for. Though we complain about
having a divided country, we live in a place where power changes
hands without violence. And for all the angst about rising
taxes, at least we live in a country where work is still rewarded
with the possibility for great wealth. The economy isn't the
healthiest right now, but it's still a fine time to be an
That said, there plenty of companies who aren't doing
particularly well and who should be thankful that they are still in
business at all. And by next Thanksgiving…they may not
I'll start with electronics chain
Best Buy (NYSE:
Best Buy posted earnings this week that were wide off the mark of
expectations, sending the share price down a quick 8%.
Big deal; companies miss earnings all the time, right?
Yes, but Best Buy's problems run far deeper than a single earnings
The company has become the unofficial (and unpaid) showroom for
the entire electronics industry. Want to check out the new
Samsung Galaxy phone…or
Microsoft (Nasdaq:$ MSFT)
tablet? Then you drive to Best Buy. But do you whip out
the credit card and
it there? No, probably not. Not when you can go to your
smartphone and order it on
Amazon.com (Nasdaq:$ AMZN)
or another discount online retailer for far cheaper…and get free
The Washington Post
reported that fully 20% of shoppers plan to "showroom" their
Christmas shopping this year. And this number should only
continue to grow.
There is no easy way out of this problem. Best Buy can
improve its web presence and try to attack Amazon head on, as
Wal-Mart (NYSE:$ WMT)
is attempting to do. But they are still going to be at an
enormous cost disadvantage for having to maintain an expense
network of stores and employees.
Perhaps Best Buy should accept its role as Samsung,
Sony (NYSE:$ SNE)
Apple's (Nasdaq:$ AAPL)
showroom and ask that these manufactures pay them for the
publicity. I don't see that approach working, mind you, but
their current approach isn't working either.
Next on the list is
JC Penney (NYSE:$ JCP).
There comes a point in a retailer's life when it is simply no
longer relevant. Best Buy still gets foot traffic, and some
of those visitors do actually buy while in the store (after
checking the prices of competitors on their phone, of course).
But JC Penney? Not so much.
As I wrote in a recent post, JC Penney is toast. The
company is a "tweener," squeezed between Wal-Mart and
Target (NYSE:$ TGT)
on the low end and
Dillard's (NYSE:$ DDS)
Macy's (NYSE:$ M)
at the mid-range price point. And I've said nothing yet about
deep discounters such as
Ross Stores (Nasdaq:$ ROST)
or, again, online retailers such as Amazon.
There is no compelling reason to go to a JC Penney store, and it
shows in the company's results. Revenues have been stagnant
for years…actually fell by 26% last quarter. Earnings
are firmly in the red and have been for the past four consecutive
In a weak overall economy, I do not see a future for a marginal
retailer like JC Penny. Outright bankruptcy might still be a
few years away…but I see no recovery for a store that has already
fallen so far in relevance to shoppers. I challenge you to
name a single friend or family member who has shopped there in the
past 12 months.
And finally, we come to
RadioShack Corp (Nasdaq:$ RSH).
I do not see RadioShack surviving to see another Thanksgiving, at
least not in its current form, and from the looks of things,
neither does the market. The stock has lost 84% of its value
over the past year and over 90% since 2011.
If Best Buy's business model is under threat, then how much
worse off must RadioShack be? The company's niche market of
specialty electronic parts and components has been absolutely
killed by internet competition. An on those days you need a
particular part or cable immediately and can't afford to wait for
shipping, you're going to get a better selection at Fry's
Electronics or even Best Buy or Wal-Mart.
RadioShack has tried multiple times to reinvent itself by
selling things such as mobile phones and service and mainstream
consumer electronics. But by doing this, they are competing
head to head with big-box retailers and the mobile phone providers
themselves. It's hard to see how RadioShack can compete here,
and frankly, the numbers speak for themselves. The company
has had three consecutive losing quarters…and this losses have
gotten bigger with each release.
RadioShack is also saddled with $750 million in debt…$375
million of which is due in 2013…and a market cap of only $193
get bailed out by an acquisition here. At the right place,
Best Buy or some other electronics retailer might the chain to be
worth buying. But barring this, I expect RadioShack to bleed
to death in the very near future.
Disclosures: Sizemore Capital is long WMT and MSFT.
via e-mail today.
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