Zombie retailers: Sears, J.C. Penney plungeOctober 8, 2014: 4:02 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Sears and J.C. Penney are two iconic American retailers. Correction. They were iconic retailers. Their best days are long behind them.
Shares of both companies plunged Wednesday -- a sign of just how uncertain their future is.
Sears (SHLD) plummeted as much as 17% after Bloomberg reported that three companies who provide credit insurance were looking to cut back their coverage to Sears suppliers. That apparently led at least one vendor to stop making shipments to Sears, which also owns Kmart.
But Sears said in an e-mailed statement that the Bloomberg story was "misleading" and that the company "has significant financial flexibility to execute our transformation and meet our obligations."
Sears added that it has almost $6.5 billion worth of inventory in its stores right now and that it still has long-term contracts with several major suppliers. The stock recovered a big chunk of its losses after releasing its statement but still finished the day down 5%.
And shares of J.C. Penney (JCP) fell nearly 11% after the company told analysts during a presentation that its same-store sales would not grow as much in the third quarter as it had previously thought. J.C. Penney blamed "softer selling than expected during the month of September ... and the continued difficult retail environment."
Both retailers have been stuck in turnaround mode for several years. The companies have been bleeding red ink for awhile and analysts are forecasting annual losses for the next three fiscal years. Wall Street has pretty much given up hope that either of them will ever return to the proverbial Springsteenian "Glory Days."
Sears is clearly the more troubled of the two. J.C. Penney has at least been able to get some customers back. Sales are not growing dramatically. But they are growing.
Sears also has a balance sheet that's so ugly, not even a Kenmore washing machine could make it look nice again. It had just $829 million in cash and $4.3 billion in debt as of the end of August.
It has also been battling concerns about its ability to pay suppliers for several years now. The stock suffered a similar plunge in January 2012 on reports that financial services firm CIT Group (CIT) was going to stop lending to Sears vendors.
But even though Sears survived that scare, it's clear that the company has entered -- to quote Walter Sobchak in "The Big Lebowski" -- a "world of pain."
Things are so dire that Sears recently was forced to take out a $400 million loan from a hedge fund controlled by its CEO and chairman Eddie Lampert.
About the best thing you could say about Sears is that it might have more assets to sell, such as shares in Sears Canada and various pieces of real estate, to help raise cash. Sears has already spun off Lands' End -- and shares of Lands' End (LE) have surged since being set free from its degenerate parent.
While J.C. Penney is not in much better shape, the company does seem to be at least making an attempt to revitalize itself -- even if it may be too little, too late.
Prodigal CEO Myron Ullman, who returned to undo the mess created by Ron Johnson and activist shareholder Bill Ackman, has emphasized a back-to-basics approach for J.C. Penney.
The retailer is looking to expand its partnership with beauty products company Sephora. It will open more Sephora shops within J.C. Penney stores through 2017.
And the company is making what appears to be a low-risk/high-reward move by opening more than 100 Disney-branded mini-stores between now and the next back-to-school shopping season in the summer of 2015.
With Disney (DIS) continuing to churn out one hit after another from its own studio, as well as Pixar, Marvel and Lucasfilm, it seems safe to say that J.C. Penney will pull a full-blown marketing blitz for anything with ties to Elsa and Anna, Lightning McQueen, The Avengers and Luke Skywalker.
Still, it's hard to get excited about either J.C. Penney or Sears. And it's sad for anyone (like me) who's old enough to remember how important these companies were to America.
Sears was in the Dow. It had a tower named after it in Chicago. J.C. Penney has been around for 112 years. Its catalog was a staple in most homes. I remember seeing this creepy commercial as a kid! My parents bought my brother and me toys for Christmas from J.C. Penney.
They may be able to hang around for awhile. But they are no longer relevant in the world. They're the walking dead of retailers.