It's almost that time of year. You have to figure out where you're going to shop in order to get a head start on the best deals. This article will cover three retailers making strategic moves for the holidays. However, one of the companies mentioned is likely to be a better investment than its peers.
Let's go all out
Over the past few years, some retailers have done well while others have fallen flat on their faces. Kohl's (KSS -2.01%) is a rarity in that it has consistently teetered on the line of mediocrity. With Kohl's paying a decent dividend, currently yielding 2.50%, shareholders could have done worse.
But Kohl's aims to be better than average. The only way that can be accomplished is for Kohl's to aggressively go after the holiday crowd. This is the biggest time of the year for retailers, and Kohl's is looking to capitalize on that trend. In order to draw more traffic than its rivals, Kohl's is implementing the following initiatives:
- Stores Open at 8 p.m. on Thanksgiving Day
- Deeper Selection of Top Toy Brands
- Extensive List of Designer Fragrances
- Newly Expanded Assortment of Popular National Beauty Brands
- Exclusive Retail Partnership with The Voice and the American Music Awards
- Dream Receipt Program (one shopper per day from Thanksgiving-December 24 will win their entire purchase)
- Virtual Snapshot with Santa (choose your own background)
- New Savings Wallet via Kohl's iPhone App (shoppers can track their Kohl's cash)
- Social Surprises and Sales (10 million+ Facebook fans will have exclusive access to surprise Kohl's sales)
Probably not enough
For many people, it's easy to root for J.C. Penney (JCPN.Q). Even if you don't shop there, it's a nostalgic connection to the past, of what malls used to be. But investors who hang on to nostalgia in hope of a miraculous turnaround are often disappointed. For instance, if you invested in J.C. Penney on January 2, 2013, you would be down 58.24%.
While a turnaround is possible, Foolish investors are much wiser than that. Foolish investors prefer fundamentally sound companies that generate cash flow, pay dividends, and are at least somewhat in-line with industry trends. J.C. Penney doesn't match the criteria.
J.C. Penney will also open at 8 p.m. on Thanksgiving Day. Will you be there? Are you going to opt for J.C. Penney over Kohl's, Macy's, Wal-Mart, Target, or Amazon.com? Exactly. And aside from opening earlier on Thanksgiving in order to keep up with peers, it seems as though the hiring of 50,000 more workers and the giving away of snow globes (starting 4 a.m. on Black Friday) are the biggest holiday initiatives. The good news is that J.C. Penney should have potential to beat last year's abysmal holiday performance under former CEO, Ron Johnson.
Another dying brand
Sears (SHLDQ) will also bring you back to a simpler time, a time when it dominated retail -- prior to the popularity of Home Depot, Lowe's, Wal-Mart, and Amazon. The difference is that Sears doesn't seem to be as easy to root for as J.C. Penney.
Numerous articles on various sites have pointed to proof of how Sears doesn't seem to care as much as it used to. It should be pointed out that anyone can take this angle and cherry-pick the negatives, but whether it's perception or reality, on Wall Street, perception becomes reality. And Sears hasn't been performing well on Main Street, either.
Take a look at its top-line performance compared to its peers:
Sears Holdings revenue data by YCharts.
Better than J.C. Penney, but that's like saying the Cleveland Browns are better than the Jacksonville Jaguars. Despite what people say, Sears is at least making an effort to improve, which is evidenced by its holiday initiatives:
- Sears Opens at 8 p.m. on Thanksgiving Day
- Kmart opens at 6 a.m. on Thanksgiving Day
- "Shop Your Way" (allows consumers to shop in different ways: online, an app, in-store pickup, with up to 10% back in rewards points
- Kmart Offering Lease-to-Own (no credit necessary)
Obvious conclusion
Nothing is guaranteed, and it's always recommended that you do your own due diligence prior to investing. In my opinion, Kohl's is far and away the best investment option out of these three companies. In addition to being the only company of the three delivering top-line growth (though minuscule), it sports a profit margin of 15.85%, yields 2.50%, and has a debt-to-equity ratio of just 0.70.
J.C. Penney's top-line is racing toward zero, it sports a profit margin of negative 53.71%, it offers no yield, and the company is leveraged with a debt-to-equity ratio of 1.34. J.C. Penney's holiday initiatives also aren't exciting. Sears is similar. The top-line isn't failing as quickly, but its profit margin is a negative 41.91%, combined with no yield, and a debt-to-equity ratio of 1.33.
Kohl's isn't the best available investment option in retail, but it's highly likely to outlast J.C. Penney and Sears over the long haul. In addition to being the most fundamentally sound of the three, it's also making the most strategic moves for the holidays.
