The stock market has soared over the past several years, but some companies inevitably get left behind due to financial difficulties and other challenges. In order to help you navigate the rough waters of the markets, three Motley Fool contributors have provided their views on why Aeropostale (NASDAQOTH:AROPQ), Sears Holdings (NASDAQOTH:SHLDQ), and Caesars Entertainment (NASDAQ:CZR) might not make it through 2015 without going through a transformative event that would leave the companies dramatically changed from their current situations.
Tamara Walsh (Aeropostale): Plagued by double-digit declines in same-store sales and weak mall traffic, Aeropostale could be headed to the junkyard this year. Not only is the teen retailer losing money on an operating basis, but it is also losing its relevance with the teen market. The company was forced to close as many as 120 of its stores in the U.S. and Canada last year, and management plans to close dozens more in the year ahead.
The teen retail chain was recently given a reprieve from its suffering, after the company raised its earnings guidance for the current quarter. Aeropostale now expects a fourth-quarter loss in the range of $0.01 to $0.06 per share, which is a significant improvement over its prior outlook for a loss of $0.25 to $0.31 per diluted share in the period. Investors pushed the stock up slightly on this news last week. However, the stock is still down more than 43% in the past year and currently trading near the low end of its 52-week range at around $3.84 per share today.
With deteriorating profit margins and mounting costs related to store closures, 2015 could be the retailer's most challenging year yet. If Aeropostale isn't able to stop the bleeding soon, it could follow in Wet Seal's footsteps. You may remember that fellow teen retailer Wet Seal filed for Chapter 11 bankruptcy earlier this year after swelling losses forced the company to close hundreds of its stores.
The teen retail space is especially cutthroat today as online shopping and changing consumer tastes continue to hurt traffic at mall stores like Aeropostale and Wet Seal. With that in mind, I wouldn't be surprised if Aeropostale became the next victim of the challenging retail environment in 2015.
Tim Brugger (Sears Holdings): After becoming a mainstay of the retail industry since its inception 122 years ago, the notion of Sears shutting its doors seems a bit strange. Unfortunately for nostalgia fans, Sears is getting closer to doing just that, at least in its current form, with every passing quarter. Why? The list of concerns as we move further into 2015 are long, and considerable.
Sears is losing an estimated $7 million a day, despite continuing to close non-performing stores, including 235 this year (and that's on top of 200 locations last year). Same-store sales, a key metric in the retail industry, continues to fall. Following a whopping 9.2% decline in same-store sales in 2013, Sears was able to stem the tide – somewhat – by closing the aforementioned under-performing stores, but sales still dropped another 2.1% in its trailing four quarters.
Not only is Sears continuing to bleed cash, it's essentially been using debt to stay afloat. Long-term debt is approaching $3 billion, and a quick look at last quarter's $548 million loss, which was $14 million worse than 2013's Q3, makes it pretty clear: Sears' turnaround efforts haven't taken hold, nor should investors expect them to. The recent 30% plus pop in Sears' stock price following news it will likely sell up to 300 stores to a real estate investment trust (REIT) to generate cash, was obviously a welcome move. However, as many industry pundits noted, it's also a likely a big first step in Sears CEO Eddie Lampert's plans to break up an institution of the American retail industry.
Dan Caplinger (Caesars Entertainment):Despite the recent uptick in activity on the Las Vegas Strip, I have grave concerns about Caesars Entertainment over the coming year. In January, the casino company put its Caesars Entertainment Operating Company unit into bankruptcy proceedings, and many analysts expect that a long-fought battle over the subsidiary could pit bondholders against various Caesars entities.
For a while now, Caesars Entertainment has worked with its sister entity, Caesars Acquisition (NASDAQ:CACQ), to move assets within the broader Caesars corporate structure. The net result thus far has been a confusing restructuring of various Caesars assets, opening up potential legal challenges as to whether those transfers were appropriate or whether they put creditors of the bankrupt operating company at a disadvantage. Bankruptcy law limits the ability of companies to transfer assets within the time periods surrounding bankruptcy filings unless those transfers meet certain requirements, and it's virtually certain that creditors will be able to make at least a legitimate case that they deserve a bigger piece of the Caesars pie.
Meanwhile, Caesars Entertainment is going through a leadership change. Former CEO Gary Loveman agreed to step down as of June 30, and while he will stay on to help with the operating-company reorganization, it nevertheless puts Caesars in a tough position going forward.
Caesars is unlikely to disappear entirely. But given its penchant for transformative corporate structures, the entity that is Caesars Entertainment might well give way to some alternative restructuring before the year is out.
Dan Caplinger, Tamara Rutter, and Tim Brugger have no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.