Circuit City, once a well-known retail fixture, is no more. Last week, I asked whether Blockbuster
In case you haven't noticed, discounters like Wal-Mart Stores
Many investors have seemed fairly enamored of Sears chairman and renowned hedge fund manager Eddie Lampert's abilities. Some have even compared him to Berkshire Hathaway's
Let's compare some of Sears' financial metrics to those of several high-profile rivals:
Company Name |
TTM Revenue Growth/(Loss) |
TTM Profit/(Loss) per share |
Debt/Equity Ratio |
Quick Ratio |
---|---|---|---|---|
Sears Holdings |
(9.2%) |
($0.04) |
40.8% |
0.2 |
Wal-Mart |
0.3% |
$3.46 |
70% |
0.2 |
Target |
(0.8%) |
$2.87 |
117.1% |
0.6 |
Costco |
(1.5%) |
$2.47 |
23% |
0.5 |
*All data from Capital IQ, a unit of Standard & Poor's. TTM = trailing 12 months.
One positive element in this exercise in retail gloom and doom: Sears doesn't have the same formidable, frightening levels of debt as our previous pair of precarious retailers, Blockbuster and Borders
Sears' quick ratio probably shouldn't be underestimated. A quick ratio below 1.0 can be a red flag, particularly if a company's sales and profit margins are suffering mightily, and especially if it may have to deeply discount prices to clear out its inventories. For a very strong retailer like Wal-Mart, with a laser-focused supply chain, a low quick ratio is no problem. For Sears, it could be serious trouble.
Meanwhile, don't forget that Sears' revenue has been doing poorly for several years now. Even more distressingly, comps have been plunging since at least 2005. In the last 12 months, comps fell 8%. A retailer with plenty of smart, savvy competition, and dwindling customer traffic and sales growth, looks mighty risky for long-term investors.
Among the stocks in the above chart, I'm far more enamored of Costco. It's exceptionally well-run, and as you can see, it doesn't have an onerous amount of debt. True, its price-to-earnings ratio of 25 looks high compared to Wal-Mart's P/E of 16 and Target's 17. But Costco's a high-class discount retailer that won't go away anytime soon, and that may be worth the premium. At the very least, it might score Costco a spot on your watch list as you wait for a cheaper entry point.
Can we say the same of Sears' long-term staying power? Probably not.