Yesterday, shares of retailer The Bon-Ton Stores
Retail misery loves company
To get caught up, an analyst upgraded Bon-Ton, and relatively new CEO Brendan Hoffman was reportedly talking turnaround, citing common potential remedies ailing retailers can try: cutting expenses, amping up marketing, and keeping a lid on inventory.
Reuters reported some of Hoffman's comments at a retail conference: "We tried to get too young too quickly... not younger by years, but younger by decades." Solutions include a more inclusive approach to demographic outreach and the use of coupons.
Such mistakes aren't uncommon in retail. Take Talbots, which long struggled with its identity. A 2008 incident tells the story of missteps over many years: A customer survey showed that women over 50 thought Talbots' clothes were for their mothers. Although Talbots has been taken private, ending its long nightmare as a publicly traded company, it never managed to turn the situation around.
As another example, take J.C. Penney
Such mistakes may not be uncommon, but recovering from them is. It's not like consumers lack options in America's malls, plus, the U.S. economy and consumer confidence aren't exactly robust right now.
A ton of reasons to avoid Bon-Ton
Just because misery loves company doesn't alleviate Bon-Ton's danger to investors. The company isn't exactly in tip-top shape financially. Last year, Bon-Ton reported an annual loss of $0.67 per share, and a 3.1% decrease in revenue. Same-store sales fell by 2.8%. Things aren't looking any better now: In the last 12 months, Bon-Ton has reported a loss of $1.62 per share.
Worse, Bon-Ton's total debt-to-capital ratio is currently a hair-raising 94.9%. That's a horrifyingly high level in the current economic times, particularly for a company that's been struggling to drum up sales and isn't currently profitable.
Fellow department store player Dillard's
In other words, Bon-Ton shares may have surged yesterday, but the red flags are waving. Turnaround dreams might seem pleasant, especially when a stock price euphorically surges, but the reality may end up a portfolio nightmare.
I'm keeping my underperform CAPScall on Bon-Ton, but I'm also removing the underperform call I had previously had on Dillard's given its improved financials. You can see my overall CAPS track record here (Dillard's has been one of my biggest losing calls). Make your own CAPScall, or if you're looking for other consumer-facing stock ideas, check out our analysts' report, "3 Companies Ready to Rule Retail" -- click here to get your absolutely free report.