To the surprise of many investors, some of the biggest winners on the stock market year to date have been department stores.
In this episode of Industry Focus: Consumer Goods, Vincent Shen and senior Motley Fool contributor Adam Levine-Weinberg dive into the latest developments from Macy's (NYSE:M), Kohl's (NYSE:KSS), and Dillard's (NYSE:DDS), which have all enjoyed bullish rallies of 30% in the past month.
On the flip side, they close out their discussion with an update on the misadventures of Sears (OTC:SHLDQ), and why investors should stay far away from the company.
A full transcript follows the video.
This video was recorded on June 12, 2018.
Vincent Shen: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Tuesday, June 12th, and I'm your host, Vincent Shen.
Fools, I'm going to start this show with a question: How many times have you heard about the "retail apocalypse" in recent years, including some of the more dire predictions for even the largest brick-and-mortar chains out there? I know we've talked about this on the show before.
Today, we're going to check in on department stores, because that part of retail comes to mind for a lot of people as the picture-perfect example of a business model that has fallen prey to this retail apocalypse. But some department stores are defying the naysayers with incredible share price gains recently.
I'm enlisting the help of senior Motley Fool contributor Adam Levine-Weinberg to cover the latest developments in the space. He joins us via Skype from Sacramento, California. Hey, Adam, great to have you back on the show!
Adam Levine-Weinberg: Thanks for having me! Great to be here.
Shen: I'm really glad that you could hop on today with us and basically put into perspective what the management teams at these companies are doing to turn around their businesses and win over investors to the point that their stocks are pretty much trouncing the S&P 500 so far in 2018. It's really not even close. The broad market is up about 3.4% year-to-date. Shares of Macy's, Kohl's, and Dillard's have gained between 40% and 55% approximately over that same period. So just in the past month, all three companies have seen their shares rise about 30%.
We'll talk about each company individually, but to kick us off, Adam, could you give us the elevator pitch in terms of what's going on in the sector that has the market rallying behind these companies?
Levine-Weinberg: Sure. If you look at these companies going back about a year, all three stocks have more or less doubled in that time. If you want to try to understand why, the first and most important reason is simply that these stocks were selling at fire sale prices about a year ago. That was the peak of investors' concerns about the retail apocalypse, particularly how that would affect these department store names. Macy's especially comes to mind, but to some extent, Kohl's and Dillard's also fell into that group.
You had, about a year ago, declining gross margins, which was pressuring profitability at these companies, weak sales trends. All three were posting pretty steady comp sales declines through most of 2015, 2016, and the first half of 2017. So all three companies were priced as if they were, not going out of business immediately, but heading in that direction, toward a pretty dramatic decline in profitability that was really never going to return to previous levels.
And over the past year, that bearish thesis, there's been some holes poked into it. Most notably, you've seen recovery in sales trends and also in earnings trends for all of these companies, and that's led to a really big change in the valuation, where some of the stock price increases have been driven by higher earnings estimates, but some have also been driven by multiple expansion, so investors are now valuing those earnings at a higher rate, because they seem to be a little more sustainable than they might have seemed just a year ago.
If we look at the sales trends in particular -- because at the end of the day, that's one of the most important things. If you have declining comp sales that never recover, it's not going to be good. There's no way that you can really maintain your earnings power in that type of situation. Kohl's finally got back to comp sales growth in the third quarter of 2017, with a tiny 0.1% increase. And that led to a little bit of investor optimism. But it was really the fourth quarter, when Kohl's posted an incredible 6.3% comp sales increase, that investors really started to get excited. And that drove this huge increase in the stock price from around $50 up to where it is now, approaching $80. Kohl's continued that strong trajectory last quarter, the first quarter of 2018, with a 3.6% comp sales increase.
Turning to Macy's, Macy's had a longer slump, took a little bit longer to get growing again. In the fourth quarter of last year, when Kohl's put up this amazing growth, Macy's did manage to get back to comp sales growth, but it was only a 1.4% increase, so modest enough to lead to a decent improvement in profitability but not driving the incredible gains you saw at Kohl's. However, last quarter, the first quarter 2018, Macy's posted a 4.2% comp sales increase. That really turned things around in investors' minds to make it look like Macy's also had this potential to have a real, serious, and sustainable turnaround, just like Kohl's.
Then, lastly, Dillard's is a smaller company. Most of their stores are in the South. It has about a quarter of the revenue of Macy's. Dillard's has also been seeing a bit of a turnaround, with a 3% comp sales increase in the fourth quarter last year, and then a 2% increase in the first quarter of 2018.
It's important to note, for all of these companies, where they've seen really good comp sales growth in the last quarter in particular, that due to a quirk of the retail calendar, all of these companies have fiscal years that are not lined up with the calendar year. So the way that the calendar lines up in 2018 is helping them out in the first quarter and will also help them a bit in the second quarter, just based on the timing of holidays. That's probably added about 2% to 3% to their comp sales growth in the first quarter. Without that, the numbers still look OK but not nearly as good. Kohl's would have been up maybe 1% or less, Macy's up a little more than 1%, somewhere between 1% to 2%, Dillard's might have been flattish. So definitely an improvement, still, relative to where they were about a year ago but maybe not quite as impressive as it seemed just from reading the top line numbers.
Shen: Okay. Let's get into some of the details, then, for each of these companies. I appreciate the overview, so listeners have an idea of what's going on, what ultimately helped to drive the rallies that we've seen. Let's look at Macy's, for example.
I was going through the earnings call, the comments from management, and I saw that Macy's team spent a lot of time, for example, talking about the progress that they're making with the company's five strategic initiatives. Those include their Star Rewards loyalty program. They launched that in October. It seems like they're expanding that to more customers, including those who don't have a Macy's credit card. They have the growth of the Backstage concept. They have 100 of those Backstage concepts opening in Macy's stores in fiscal 2018, and they're making their way to high-end malls, also to the West Coast for the first time. There's the vendor-direct expansion, which is basically items purchased online from the Macy's website being shipped directly from the vendor to customers. Their omnichannel efforts, that's No. 4, we've seen elsewhere the importance of the omnichannel. Here, it's things like buy online, pick up in store; buy online, ship to store. They're expecting those things to be available in every location by August.
Then, No. 5, there's Growth 50. This was one that I thought was really interesting, where basically, management has taken the most promising initiatives that they tested in 2017 and they've rolled those out to 50 test locations, so then, later this year, they have data information from those test locations on how customers respond to various things. Ultimately, they're hoping to find a new model that the company can scale going forward.
Beyond these strategic initiatives, and I know there's a lot of other efforts that management discussed during the call, is there anything that stands out to you in terms of the past quarter, the past six months, that you think is really promising long-term for the company?
Levine-Weinberg: Yeah. There's a few things that I would highlight. The first is that change in the loyalty program that you mentioned -- it's really a series of changes. This was something where, the loyalty program had been the same for a long time. The management team realized that it was really more of a rewards program than a loyalty program. You shopped, you got coupons, you could come back and shop again, get a little discount. It didn't actually encourage people to be loyal, it didn't have that kind of differentiation where the more money you spent with Macy's, you would see a big increase in the value you'd get, so they changed the program. I'm sure that there will be other tweaks coming up in the future, as they see how customers react. But they rolled out the first iteration last fall. It seems to be working so far.
Some of the things that they've added is, customers who are spending more money with them can now get free shipping on all of their e-commerce purchases without having to hit that minimum that's required for a typical customer. That encourages those people who like shopping at Macy's to shop there more. If you get up to a certain level of spending, you'll get 5% back in rewards. That's similar to stuff we've seen at Target with their credit card, where it has a 5% reward built in.
There are various initiatives like that. I won't go through all of them. The key really, strategically, is that they want to make sure that people who are spending more are being rewarded for that and being incentivized to spend even more money at the store. Macy's realized a year ago they have this huge base of customers; they have huge recognition. People know what Macy's is, and they want to go from being familiar to being people's favorite store, getting people who already shop there a little bit to shop there more, people who shop there a lot to add even more to their baskets at Macy's. That's been quite successful so far. Generally speaking, with these loyalty changes, it takes a while for them to really gain steam as customers begin to understand the changes and modify their behavior. I think that you could see, over the next 12 months, even more gains coming from that loyalty change.
The second big thing is the Backstage rollout that you talked about. Coming into this year, Macy's had Backstage stores in about 50 of its full-line locations. It's found, over the past year or so, that those locations have about 7% increase in sales relative to a control group, which is similar stores that didn't get Backstage. That's a pretty good indication that, in addition to being a more productive use of some store space, that the Backstage stores are also encouraging people to come back more often. As an off-price concept, they have a rotating merchandise selection which changes frequently. That gives customers an incentive to come back frequently to see what's new, whereas a typical department store arrangement might only change every three months.
That's been pretty successful for them, so Macy's is going to be rolling that out to another hundred stores this year, roughly tripling the footprint. The Macy's CEO recently stated that, in an ideal world, he'd like to have Backstage in every single store, eventually. That would be quadrupling, again, from where Macy's expects to be at the end of this year. When you roll out a 7% sales lift across the entire chain, that can have a really pretty significant impact on both sales and on profitability.
I would say that those are the two most important, in terms of initiatives that really have a long-term, positive impact on Macy's sales and earnings.
Shen: Okay. A few other things that I'd like to call out for listeners, too. They mentioned, this deal is the acquisition of STORY. This is a unique, New York-based concept store. The big draw for this store is that it gets a facelift, essentially, every six to eight weeks. STORY's founder and CEO is now becoming Macy's Brand Experience Officer. Take that on one end. Then, also, something else that I saw that management spoke to was how the company was planning to roll out mobile checkout to every store by the end of the year. Basically, what this allows a customer to do is scan an item in the store with the Macy's app, they can pay on the app and then leave after getting, for example, the security tags removed from apparel. The idea is to make this experience a little bit smoother.
But combined, I just see these initiatives, like those two, as being this ongoing push from the management team to experiment and adopt what I would consider to be more leading-edge ideas in retail to make the experience stickier and to reduce the friction for a customer to close a sale when they're shopping with the company. And combined, I think, going forward, with an initiative like Growth 50, you have these stores that are supposed to be representative of the company's many other locations, they end up giving management a lot of clues as to how they need to package the shopping experience, and whether that means more curated product assortments, more localized marketing, or investing in the store buildings and facilities in certain ways, just a bit of a road map for the company going forward.
But I do want to move on. What we're seeing at Kohl's, too, for the second department store that we're looking at here, this was their third consecutive quarter of growing comparable sales. If you read through management comments again, a lot of the initiatives that they mentioned overlap with or echo what we've discussed with Macy's. There's that focus on e-commerce, specifically mobile. They say that makes up 70% of the digital traffic, about half of online sales. Stores apparently fulfilled 30% of digital orders in the first quarter. That's up 5 percentage points from the prior year. They also talk about initiatives like buy online, ship to store. That came up as a traffic driver and an increase to the number of offerings that customers can order and ultimately pick up at Kohl's locations.
Is there anything else on the Kohl's front that really jumped out to you? I know they've announced, in the past year, pretty unconventional partnerships with Amazon, for example, and Aldi. A lot of people are looking at that and scratching their heads, like, is this really the path forward? But so far, management seems pretty happy with results; they appear encouraging. But I'm curious to hear your thoughts on those efforts and anything else that's really jumped out to you.
Levine-Weinberg: Yeah. Kohl's management team has really said that the primary focus has to be on driving traffic. Even by comparison to Macy's, Kohl's really has been quite successful, much more successful in that regard than Macy's. The idea here is that, the more people you have coming into the store, the more purchases will be made. That really is the driver of the in-store economics, making that in-store business model work.
What you've seen from Kohl's is a focus on different initiatives. How can we get more people to come into the store? What's grabbed the most headlines have been these partnerships. With Amazon in some test locations, in Chicago and Los Angeles, Kohl's began accepting returns for Amazon. So you'd buy something from Amazon.com, it comes, you don't want it for some reason. Instead of having to go through the whole return shipping process, which can be cumbersome, or in some cases, you have to pay for the return shipping. If you live in Chicago or Los Angeles, you can go into a Kohl's store, they'll take it from you, you don't have to deal with boxing it up -- really convenient for customers.
To some observers, they say, "Isn't this just going to make people want to shop even more on Amazon, because you've just made it more convenient for them?" That might be true, but more people are shopping with Amazon no matter what Kohl's does. What this means is that now, you have a steady flow of traffic of Amazon customers walking into Kohl's stores. Once they're there, it's pretty convenient to go pick something up if you realize, "Oh, I need underwear, I need a new pair of shoes." Kohl's has all of that right there. So that's been a really interesting idea, and it seems to be pretty successful, to the point where Kohl's wants to roll that out further, and it seems like Amazon is also interested in doing that.
A second big thing for Kohl's was this Aldi partnership, which is really just scratching the surface. They're subdividing a few of their stores to put Aldi grocery stores next door. The idea there is, grocery stores get lots of traffic. People are going there weekly or multiple times a week. And if Kohl's doesn't actually need all of the retail space it has, shrinking the store doesn't really have any downside. And in fact, in many stores, they've changed the fixtures that they use to make the store appear like it's smaller, because they realized, they had these giant stores where they were putting inventory in just to make the store look full, and they didn't really need that much inventory, based on the demand they were seeing.
So, Kohl's has been trying to reduce inventory, use different fixtures. But it really means that, in about half their stores, Kohl's has an opportunity to shrink by 20,000 square feet or so, or even 30,000 square feet, and really have a more optimal store size. That creates room to bring in another tenant where, one, they'll have a rent check coming in every month, which is obviously good for the bottom line. But two, they're hoping that some of those people who are shopping next door at Aldi or another tenant that they might bring in will walk next door and go to Kohl's. So both of those moves are really designed to bring more traffic in.
Aside from those high-profile partnerships, I think we should also mention some of the product partnerships that Kohl's has been investing in. The most notable one was bringing Under Armour in the store last year. That's really helped them build up more credibility in this wellness initiative that they have. With lots of products from Under Armour, Nike, Adidas, all of these brands that are into athletics and wellness, that's helping Kohl's bring more traffic in, maybe a consumer that's not previously been a regular Kohl's customer.
Some of the other things that we've heard about very recently in the last month, are new shops from Lego and FAO Schwarz that are coming in in time for the holiday season to build up toys as a business line for Kohl's. All these brands, obviously, are looking for new distribution, particularly with Toys R Us about to close the last of its stores in the U.S.
Shen: Yeah. I'd say, the really interesting aspect of this, in terms of the carve-outs that Kohl's is leaving for partners like Aldi and Amazon, is the fact that we've seen this trend where, to increase foot traffic, it is clear that a lot of these larger brick-and-mortar operations have a lot more square footage, like you said, than they really need to serve in-store shoppers. It's interesting how you see other big retailers like Target, too, in terms of trying to get into more urban areas, urban markets, they are also shrinking their footprints and realizing that that might be the path forward for a lot of their locations.
The last thing I'll mention, in terms of some of the progress they've seen, both Macy's and Kohl's mentioned during their calls that their digital growth was in the double digits. I think for Kohl's, it was specifically right around 20%. The standout, I think, for Kohl's, in terms of how they've approached this, growing digital business -- as important as that is, and how every retailer out there is thinking about how they've investing in that channel -- it's usually a drag on profitability because of the increased cost associated with order fulfillment. But they credit things like buy online, pick up in store and also additional investments that they've made in their e-commerce fulfillment centers. And as a result of those things, their gross margin has actually managed to expand during their first quarter, at least, even with this growth in digital. That's definitely a good sign, I think. The management team did also speak to a little bit of the changes to their loyalty program, things like that.
I do want to move on just so we have a little bit of time to talk about the smallest of the three, which is Dillard's. Any specific initiatives that you wanted to call out that management has been really focused on recently?
Levine-Weinberg: Dillard's is a bit of an enigma. The company is still largely owned by the founding family, the Dillard family. They hold all of the senior management roles at the company other than CFO. They don't hold earnings calls, they don't have investor conferences or presentations. They basically don't tell investors anything other than the quarterly reports that they're required to file, so it's a little hard to understand what they're doing.
When you read through a quarterly earnings release for Dillard's, it doesn't talk a lot about initiatives that they're doing to try to drive traffic. If you dig deeper and look at their financials, this is a company that's really, seriously, over the past decade, cut back on their capital spending. Whereas Kohl's and Macy's are spending about $700 million and $1 billion, respectively, each year on capex, with a lot of that money going toward technology, Dillard's is spending between $100 and $150 million a year.
Now, to be fair, they do have a smaller store network, so that does cut down on the cost they need for reinvestment. That said, with a lot of these technology investments, there's not much change in what it costs to build out the same capabilities, just based on what your scale is. Other smaller retailers that are really tech-forward are spending just as much money as Kohl's and Macy's to build out their technology capabilities. Dillard's really just seems to be conserving cash to maximize their free cash flow, and then, with the free cash flow, management has just been buying back a huge amount of stock.
So with Dillard's, it really seems like the company is hoping for a broad revival in retail sales and improving mall traffic to lift the business, and the company is not really investing a lot of money in self-help initiatives to try to fix its problems. Just digging into the first quarter numbers, it seemed like inventory was growing at a faster rate than sales, which is a little bit disconcerting, because that often will put pressure on profit margins going forward. Also, the 2% comp sales increase that Dillard's reported was slower than what you saw at Kohl's and Macy's, even though Kohl's and Macy's have more of a presence in the Northeast and Midwest, where there are these really bad snowstorms that probably hurt traffic and sales of spring apparel. Meanwhile, Dillard's is almost all in the South, in that Sunbelt region, so that should have boosted Dillard's comp sales results last quarter, and it really didn't seem to help very much.
It's a little troubling, what you're seeing at Dillard's right now. It's not clear that the company really has a strategy to make a sustainable turnaround. Look, if the market does great, the fact that they're buying back so much stock will lift the stock price simply because even if the net income is flat, that's a big boost to earnings per share. The problem is that, you saw a big increase in Dillard's stock price a few years ago through this strategy, and then, beginning around 2015, profit margins deteriorated very rapidly, and the bottom fell out from under Dillard's stock. There's really a risk that that's going to happen again whenever the next retail downturn happens, and that could only be a year or two away, for all we know.
Shen: I do want to talk a little bit more about outlook and how sustainable the progress is for some of the other companies that we've talked about, in terms of the rest of 2018 and beyond that.
Adam, we've talked about some of the tailwinds and the initiatives that are helping these department store stocks rally recently. My last question to you on this before we move on is, do you think that this party will last? And in that case, which of these retailers do you think are in the strongest position to keep up the momentum behind their rallies?
Levine-Weinberg: I think that, as I mentioned before, the Dillard's rally really doesn't really seem sustainable to me. It seems like it's really boosted by these stock buybacks, and when the market turns, I don't see any initiatives at Dillard's that would maintain the profit margin even at the lower levels where it is today.
Between Kohl's and Macy's, I own both of those stocks, I definitely like both companies. I would say that Kohl's has more upside, just based on its turnaround initiatives. First, I really like the move to bring in other retailers, particularly Aldi and grocery stores that drive a lot of traffic, into its locations. As I mentioned before, it's really just scratching the surface. It has a lot of room to do that, bring in rent, and also hopefully boost sales in the stores next door. Additionally, Kohl's has very, very strong free cash flow. Lastly, the store locations, which are mainly not on the malls, are in more accessible locations. It's definitely a big plus for Kohl's.
As for Macy's, I really like the turnaround initiatives. I think there's more upside there. Macy's also has a huge amount of very valuable real estate, highlighted by its flagship store in Manhattan, which is probably worth at least $3 billion. As Macy's manages to monetize some more of that real estate, that could definitely provide an additional lift to the stock. But I do see the prevalence of mall-based real estate as being a problem long-term for Macy's, because even with all the initiatives they're doing, it does seem like mall traffic will continue to decline, at least for the next few years. That's going to be a persistent drag that Macy's will have to overcome, that Kohl's is not facing.
Shen: Okay. Well, I want to move on to our last topic for today. We've been talking about this rally that a lot of these department stores have seen, but it's obviously not all sunshine and rainbows for this space. We're going to close out this episode by spending a few minutes catching listeners up on Sears.
Shares for this company are down 90% in the past five years. CEO Eddie Lampert and his team seem convinced that, after messing with real estate, shrinking the store base enough, the company can eventually turn a profit again at some point in the future. I understand the strategy, in terms of doing whatever it takes to pay the bills, keep the doors open. But when you couple it with some of the other moves, like the sale of some of their major brands like Craftsman and Lands' End -- plus, Kenmore is also on the chopping block now -- the endgame feels like it would just be a shell of a healthy retail business than an actual going concern.
I'm curious, the Sears situation, what's the latest, and is there really an ending here that you think investors would be happy with?
Levine-Weinberg: Well, I certainly don't think there's going to be a happy ending here. If you look at the first quarter numbers, Sears had another double-digit decline in comparable store sales, 11.9% decline. Overall total sales fell 31%. That's because you had quite a number of store closures over the prior year. Not surprisingly, with these terrible sales numbers, you also had terrible earnings numbers, net loss of $424 million. The adjusted earnings before interest, taxes, depreciation and amortization, which is the number that Sears wants you to look at because it's a little bit better, still wasn't good. It was negative $225 million, which was a little worse than it was a year earlier.
Sears says that they've cut $1.25 billion of costs during fiscal 2017. The fact that earnings are still declining, or at least stable, is not good news, because it means that all of those cost cuts basically went to offset the sales declines. That brings up the question, where is Sears going to find additional cost cuts of that magnitude to offset the coming sales declines of 2018? And that's a pretty big unanswered question.
Meanwhile, you're seeing more store closures. Sears closed more than 100 stores in the first quarter. In the last couple of months, Sears has announced additional store closures of more than 100 locations. That's going to take Sears from more than 1,400 locations at the beginning of 2017 to less than 800 by mid-September, a pretty shocking --
Shen: That's jaw-dropping, that's absolutely jaw-dropping.
Levine-Weinberg: And what's the most disturbing is not the store closures themselves but the fact that Sears will keep telling investors, "We've identified some stores that are not profitable, which we're going to close in order to improve our profitability." The stores close, the profitability doesn't actually improve. And that just goes to show that the profitable stores are ever-so-steadily moving toward unprofitability. So every year, there's another crop of stores which have magically become unprofitable because of the sales declines and margin declines over the previous year. That's a pretty bad situation.
Now, Sears' stock has been pretty volatile. You've had some big bounces over the past few months in addition to the longer-term decline. Some of the things that drove the gains for Sears' stock were, they just closed a $400 million payment they got from Citibank, which is their credit card partner. That was a payment to extend their existing partnership. They offer this Shop Your Way credit card, which offers a variety of rewards. It's set up, structured, to be a little bit like the Costco credit card, which is also issued by Citibank. The difference is that lots and lots and lots of people shop a lot at Costco. The same can't be said for Sears. It's a lookalike, but it's not nearly as successful. However, Citi did make this payment to extend the agreement and also to buy out Sears' interest in some of those credit card accounts. That definitely was helpful, because it's giving a cash infusion that will keep the company alive for a little bit longer.
However, Sears burned almost $2 billion of cash last year, and Sears seems to be on track toward a similar level of cash burn in 2018, before possibly having a little bit of improvement in 2019. The problem is that, over the past several years, Sears had a huge number of assets that it could sell to fill the gap and pay for its operating losses, and it's really running out of assets to sell at this point. The company does own a bunch of real estate. It owns that Kenmore Appliances brand that it's looking to sell. Sears is also looking to sell parts of its Home Services unit. ESL Investments, which is Eddie Lampert, the CEO's, hedge fund -- he runs a hedge fund in addition to running Sears Holdings -- ESL has announced that it's interested in buying some of these assets.
The problem for Sears is that almost all of its valuable assets are now encumbered in some way. That means that they're being used as collateral, either to support its debt or support its pension obligation. Sears has over $5 billion of debt and a pension deficit of more than $1 billion, so there's really a lot of money that's being called for by these different commitments that Sears has made over the past few years.
The result is that, even if Sears does manage to sell all these assets, a lot of the proceeds will need to go to paying down the debt and contributing it to the pension plan. That won't leave a lot to plug further gaps in its operating losses. As a result, I think it's going to be pretty difficult for Sears to survive past late 2019 or early 2020. The company does seem to have enough liquidity to make it to the end of this year, but it's definitely confronting a problem, and there's no clear solution. The underlying retail business has become so bad, it's just in terminal decline at this point.
Shen: This is a situation, too, especially with some of those commitments that you mentioned, where it's like, what options really does the company have? They have these significant liabilities, really stripping them also, long-term, in terms of strategy, of the ability to do any investing in online infrastructure, fulfillment capabilities, private brands, all these other initiatives that we talked about earlier with some of the stronger competitors. We seemed to give Dillard's a knock, because they're not investing as much as Macy's and Kohl's relative to their size. Here, this is the complete opposite. I feel like Sears is running in the complete opposite direction.
Levine-Weinberg: It's absolutely true. Even if you just go back a couple of years, Sears was bigger than almost all of these other companies and was spending even less money than Dillard's on capex, not because of a strategy, simply because it didn't have money to spend. It cut costs to the bone as a survival strategy, but it was really only a short-term survival strategy, not something that could drive a sustainable turnaround.
Shen: Okay, we have about a minute left. I'll leave you with one more question. For investors in this space, or people who are looking in this space, is there anything coming up in the rest of 2018, or even further out, that you're really following, keeping an eye out for, in terms of the department store space?
Levine-Weinberg: I'm really interested to see what happens in the second half of 2018, looking at the sales and earnings trends at these companies, particularly for Kohl's and Macy's. The main reason why is that, if you go back last year, that's roughly when the sales turnarounds began. So they're going to start facing harder comparisons, particularly in the fourth quarter. The question is, can these companies maintain sales growth on top of last year's sales growth?
A connected question to that is, right around the same time, getting into the second half of this year, these companies will start benefiting from the bankruptcy and liquidation of some competitors like Bon-Ton, which was a regional department store operator in the Northeast and the Midwest; also, to some extent, Toys R Us, which has also filed for liquidation and is closing all of its stores. It's a big question of whether these chains can capitalize on the disappearance of these competitors to make sales gains at their expense.
Shen: Okay. Thank you so much for joining us today!
Levine-Weinberg: Thanks for having me on again!
Shen: People on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear during the program. Thanks for listening, Fools. See you next week!