Multiline Retail


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Note: For news on Walmart (WMT), head on over to our Food & Staples Retailing page.
TGT $122

​20 Nov 2024
If Walmart is the gift that keeps on giving, Target is the Grinch

Maybe it wouldn't have looked so bad for Target (TGT $122) had they not released their lousy earnings results the day after Walmart's barn burner. Nonetheless, the level of surprise and disappointment by the Street was so high that shares of the multiline retailer plunged over 20% at the open—and sustained those losses through the close.

The company missed on virtually all metrics. Revenue for Q3 came in at $25.67B vs the $25.90B expected, earnings per share hit $1.85 vs the $2.30 expected, and full-year profit guidance was slashed—just three months after it was raised. It begs a couple of questions: How did management get it so wrong, and why did the company's closest competitor perform so well? From the massive data breach, to a disastrous social gaffe (its Pride collection debacle), to this big miss, investors have serious lingering questions about CEO Brian Cornell and his management team.

Chief Operating Officer Michael Fiddelke blamed a "deceleration in discretionary demand combined with cost pressures" as reasons for the poor report, but that is a tenuous argument. Walmart said it saw strength amongst shoppers whose families bring in over $100k per year; considering Target's average shopper is in a higher income category (based on industry data), something doesn't add up. Furthermore, this past spring Target announced a price cut on 5,000 frequently purchased items to spur sales, with another wave of cuts hitting in October. None of that seemed to matter. Shares of the Minneapolis-based retailer are now down 14% year to date versus Walmart's +65% YTD performance.
As shoppers of both Walmart and Target, we have noticed a change in the latter over the past year or so. From items being out of stock more frequently, to self checkout lines often being roped off. Anecdotal, to be sure, but the numbers the company just released point to a very real problem. We wouldn't touch the shares even after the drop.
M $16

​22 Jul 2024
Macy's will go it alone, ends talk of sale to go private
Last December we wrote of Macy's (M $16) planned deal to sell itself to Arkhouse Management and Brigade Capital Management for approximately $6 billion, thus becoming a privately held retailer. Shares surged 20% higher on the news. Last week, the opposite took place. Shares of M plunged after the company's board unanimously agreed to walk away from what they perceived as an underwhelming proposal that came with a lack of certainty over financing. They punted despite the raised offer price of $7 billion from the would-be buyers. Macy's has faced severe competition in recent years from not only traditional peers such as Nordstrom and Kohl's, but also from retail giants like Amazon, Walmart, and Target who have been encroaching on their turf with higher-quality clothing. As if the environment weren't challenging enough, Chinese online retailers like SHEIN are now eating into market share. JC Penney lost its battle to stay public after being forced into bankruptcy by a massive debt load, only to be purchased for the paltry amount of $800 million ($300 million in cash and the assumption of $500 million of debt) by two retail REITs. The same two REITs, Brookfield Asset Management and Simon Property Group, were on the verge of buying struggling retailer Kohl's for $8.6 billion back in 2022 until management downgraded its full-year outlook. Kohl's now has a market cap of $2.5 billion. Macy's may not end up like its unfortunate peers, however. Not only does the company own massive real estate holdings (which Arkhouse and Brigade almost certainly would have sold off to gain capital), it also has a promising strategic initiative to be spearheaded by new CEO Tony Spring. Actions will include closing unprofitable locations, increasing the upscale Bloomingdale's brand, enhancing the customer shopping experience, and improving an already robust online presence. Had the firm gone private, the focus would have been squarely on cannibalizing the company's assets rather than maximizing potential. We last owned Macy's in the Intrepid Trading Platform back in 2020. In November of that year, we closed the position for an 82% gain. While we don't currently plan on adding the company back into a strategy, we do believe the shares are worth north of $20.
M $21

​11 Dec 2023
Macy's shares soar after buyout offer announced
In August we added a small Macy's (M $21) position to the Intrepid at $13.32 per share. Legacy, multiline retail is a tough business these days, but we saw Macy's and Nordstrom (JWN $18) as two of the survivors. While we knew Nordstrom would probably be taken private at some point (perhaps by the Nordstrom family), this one was a surprise. We simply saw Macy's as undervalued at its price at the time, not the potential target of a few private equity firms. Shares of M flew some 20% higher on Monday after it was revealed that investment firm Arkhouse Management and asset manager Brigade Capital Management had submitted a $5.8 billion bid to take the company private. With a single-digit forward P/E, it still seems as though they are getting a good deal, especially considering the real prize: Macy's real estate portfolio. At a conservative estimate, the firm owns in excess of the offer price in real estate alone. It is unclear whether this was the impetus behind the bid, but we would guess it was the major factor. No word on management's review of the offer, and they are certainly not desperate to make a sale. With about $3 billion in debt, the company has a respectable 50% debt-to-equity ratio after the spike in value. (For comparison, Nordstrom's debt-to-equity ratio is 393%.) Over the trailing twelve months, Macy's earned $685 million on $24 billion in sales. In other words, they continue to operate in the black—something that a lot of retailers (Kohl's comes to mind) cannot say. To repeat ourselves, this is an ultra-tough industry in which to operate, specifically due to the mushrooming of online competition. We would be tempted to take the money and run. Without shareholders breathing down management's neck each quarter, a creative leadership team could shape a great new experience for shoppers. But in this climate, who knows if the deal will even get done. Buy the rumor, sell the news. We took our profit and closed the position. But honestly, we didn't see this one coming.   
TGT $109

27 Sep 2023
Target announces the closure of nine stores in crime-ridden areas
It is a horrendous problem and a sad testament on the current state of American society. Organized crime has become so rampant at bricks-and-mortar stores that major American retailer Target (TGT $109) has announced the closure of nine locations in four states to protect their employees from physical harm. The affected stores are in New York City, Seattle, San Francisco, and Portland. Target, which operates at 1,950 locations across the country, becomes the first retailer to specifically blame crime for the shuttering of stores. While many management teams have shied away from discussing the problem during quarterly conference calls, CEO Brian Cornell has been shining a spotlight on this disgraceful situation. While Target earned nearly $3 billion in profit during the most recent fiscal year, Cornell said he expects the company to take a $500 million hit this year due to theft. The industry is pushing Congress to pass the Combating Organized Retail Crime Act, which would create an organization within the Department of Homeland Security to better align federal, state, and local law enforcement agencies engaged in the fight. It would also impose harsher penalties on offenders, and force online marketplaces to step up their vetting of vendors to help assure stolen goods stay off the sites. One major challenge has been the lack of willingness on the part of certain jurisdictions to prosecute the criminals nabbed by local law enforcement. Sinking some federal “teeth” into the problem would certainly reduce the effect of recalcitrance on the part of local officials. Target has told its employees at the affected stores that they would have the opportunity to transfer to other locations within their respective areas. This is lawlessness, plain and simple. While nearly a dozen states have passed laws imposing harsher penalties on these retail thieves (none of the four states listed above are included in that list), a coordinated and effective national effort is needed. Until such a program is implemented, the problem will persist. From an investment standpoint, we believe Target is trading at a 50% discount to its fair value.  
TGT $161

AMZN $118

ROK $280

18 May 2023
Theft, plain and simple: Target expects over $1 billion worth of shrinkage this year
It is a sad testament to our society. Crimes being committed while the justice system looks the other way. Retailer Target (TGT $161) said it lost $763 million last fiscal year due to shrinkage, which is an industry term for the theft of goods. What’s more, the company expects that figure to increase by $500 million this year, bringing the total loss to over $1.2 billion. For a retailer which earned $2.8 billion in net income on $108 billion in sales over the trailing twelve months, that figure is substantial. And Target is certainly not the only firm facing this problem. The National Retail Federation said that nearly $100 billion worth of goods were stolen in 2021, with the number of violent incidents on the rise. Target is battling the problem by installing more “protective fixtures” in its stores, which means inconvenience for paying customers. We were taken aback the first time we went into a CVS to buy shave blades, only to find them locked behind a plexiglass cover. Expect more items to be protected from theft in this manner. Also expect companies to continue closing locations in high-theft areas, meaning local residents will have to drive further to do their shopping. Where there is a problem, there is also opportunity. Privately held OpenEye offers its OpenEye Web Services (OWS) system to clients to deter theft, reduce internal fraud, and generate valuable business intelligence for retail stores nationwide. Expect the rapid rise of AI to play a major role in theft prevention, with security companies rushing to apply the emerging technology to solutions for retailers. AI systems can be placed near checkout stands to account for every product in a customer’s possession. New Amazon (AMZN $118) Go convenience stores use advanced technology to scan all items in a cart and charge the customer automatically, negating the need for a checkout stand. Expect more retailers to adopt this technology within the next few years. In an ideal world, all individuals would have the moral fiber required to not commit these crimes. As we don’t live in such a world, opportunities will be plentiful for creative security technology firms developing solutions for frustrated retailers. Expect a slew of AI companies to go public over the next twelve to eighteen months; many of which will provide retail security solutions. In the meantime, our favorite pure automation company is Rockwell Automation (ROK $280), which provides intelligent devices and software to business clients, as well as consulting services. We own Rockwell in the Penn New Frontier Fund. For an interesting read on Amazon Go’s “just walk out” AI technology, visit here.
TGT $248
Our favorite retailer, Target, gives an early Christmas gift to both customers and employees
(23 Nov 2021) Retail juggernaut Target (TGT $248), whose shares have risen 295% in value since we added it as a Consumer Defensive play within the Penn Global Leaders Club under three years ago, has faced two catalysts over the past week which have sent shares lower. Ironically, we love both of them. The first came in the statement following last Wednesday's earnings release. Masterful CEO Brian Cornell, such a different leader than the hapless Gregg Steinhafel, said that the $120 billion retailer was in a "strong inventory position heading into the peak of the holiday season...." Investors were fine with that statement, but when Cornell warned of higher expenses and trimmed gross margins due to inflation and supply constraints, and asserted that Target could "tolerate lower margins if it meant keeping prices (lower for consumers)," which would be fine with him, that was simply too much. A retailer putting customers above fatter margins when those costs could quite easily be passed along? That simply did not compute for investors, which sent the shares down 4% in the pre-market, despite healthy year-on-year revenue and earnings growth. The second share drop within a week came after the company announced that not only was it going to be closed this Thanksgiving, it will remain closed on the holiday in future years as well. What century does Cornell think he is living in? That shaved another 4% or so off of the share price. Two excellent decisions met with derision. That sounds about right. Some days we watch and listen to an endless stream of malleable, weak, milquetoast CEOs as they contort themselves into odd shapes to prove how enlightened they are. And other days we come in and see something refreshing: true leadership. Cornell's skill at the helm is a major reason why Target remains a shining star in the Penn Global Leaders Club. 
JCP
The JC Penney CEO carousel continues as the firm begins search for its sixth leader in the span of a decade
(04 Jan 2021) To keep one of their major anchor stores from shutting down, mall owners Simon Property Group (SPG $86) and Brookfield Property Partners agreed to rescue JC Penney (OTC: JCPNQ $0.15) from bankruptcy in an $800 million deal—$300 million in cash and $500 million in debt assumption. While this may have been comforting news for most of the 80,000 or so remaining employees of the beleaguered retailer, one particular employee is probably not too happy: the new owners just fired CEO Jill Soltau. Sadly, the news doesn't mean much for a company seeking its sixth leader in the span of a decade. Soltau, the former head of Jo-Ann Fabrics, probably had the best shot of any of the firm's recent leaders to bring about positive change; at least until the pandemic forced the company to declare bankruptcy this past May. Now, with Simon's chief investment officer, Stanley Shashoua, temporarily in charge, the new owners begin the search for someone who can bring yet another new vision to the 119-year-old retailer. The right person is out there, we just have no faith in Simon to find that individual. Maybe they can woo the hapless Ron Johnson back. We are rooting for the retailer, which now has a market cap of just $48 million, and we do believe that a creative leader could still turn the ship around. Even with the shares sitting at fifteen cents on the OTC exchange, however, we are not willing to place money on that bet.
JWN
At $15, Nordstrom shares may be the retail deal of the decade, but...
(26 Aug 2020) Precisely one year ago, we made note of Nordstrom's (JWN $12-$15-$43) rather odd 16% one-day spike in price—to $31. Odd because it came on the heels of an earnings report that showed a 5% drop in revenue from Q2 of 2018. The spike apparently took place because analysts were expecting a much deeper drop. Here we are a year later and, with a pandemic added to the mix, analysts were really bracing for the worst. In fact, betting odds called for a 39% drop in sales from 2019. It wasn't even close. JWN shares were trading down around 6%—to $14.66—following news of a ghastly 53% drop in sales for the quarter. Even online sales, the bright spot for most retailers as customers were stuck at home behind their computers, dropped 5%. Nordstrom's earnings report even made the Kohl's quarter look good, and that was no easy feat. Despite the reasons management gave for the drop, here's our biggest concern: Nordstrom makes its living off of selling higher-end clothing and accessories to an upscale workforce that wants to look nice in the office. When the family dog, Scruffy, becomes the only one needed to impress, Milk Bones—not fancy clothing—becomes the go-to purchase. (Milk Bones are a JM Smucker name brand, by the way.) For the quarter, Nordstrom had just shy of $2 billion in sales (down from roughly $4 billion in the same quarter last year) and a net loss of $255 million. The company doesn't have many money-losing quarters, however, and despite the lack of a P/E ratio due to that loss, its multiple had been as low as 4.1 the first week of April. Yes, the company's short-term and long-term liabilities to assets don't look great (roughly $4B/$4B and $6B/$6B, respectively), but odds are great that the company isn't going the way of JC Penney. When the inevitable return to normalcy does come, we could easily see the shares trading at twice their current price.
TGT
Penn Global Leader Target Corp. notches a blowout quarter
(19 Aug 2020) As if they weren't already on a tear, shares of Penn Global Leaders Club member Target Corp (TGT $149) popped another 9%—reaching yet another record high—after the retailer posted a simply stunning quarter. Overall, online and in-store sales were up 24.3% for the quarter, with the company attracting ten million new customers to its digital platform. Earnings per share blew past the expected $1.62, hitting $3.38, and profits rose by 80%, to $1.7 billion. Target breaks its merchandise down into five categories—all five showed strong growth. The company's electronics line was up 70% year-over-year, with the other six categories—to include beauty and apparel—rising by about 20% each. Despite launching just a year ago, Good & Gather, the firm's private label grocery brand, rose above the $1 billion in total sales mark. When a company reports surprise earnings, either to the upside or the downside, we like to review what the analysts were saying leading into the announcement. Our favorite came from Morningstar: the investment research firm had a one-star (sell) rating on TGT with a fair value of $98/share. Oops. We bought TGT shares during that nightmarish week before Christmas, 2018.
M
Macy's to furlough most of its 130,000 workers. (31 Mar 2020) Back in February, about a week before the great downturn began, we wrote of Macy's (M $5-$5-$26) latest turnaround plan. Actually, we made fun of Macy's latest turnaround plan. We excoriated management for coming up with yet another grand strategic plan with a super-secret code name that would do exactly zilch for the company's real problem: a staff that didn't seem to want to be at work, and disheveled, disorganized departments. When we wrote our commentary, shares of M were sitting at $17, and we recommended steering clear. Now, with the shares at $5, it seems as though the staffing problem will be addressed: the company is about to furlough most of its 130,000 workers. Some might look at the chart and see an incredibly-undervalued diamond in the rough; we just see a company that lost its way—long before a nightmare virus came along. The retailers which are holding up the "best" during the COVID shutdown are the ones that embraced an online presence years ago. Macy's did not, and they are now paying a brutal price. As for the workers, they will receive no pay from the company once furloughed, but will continue to receive health benefits coverage at least through the end of May.
M
Macy's has a turnaround plan. It looks a lot like their last turnaround plan. (07 Feb 2020) We are rooting for Macy's (M $14-$17-$26) to succeed, but we fear they just don't get it. For all of management's big talk, why is the level of service so bad when we go into one of their stores? With the C-suite focusing on code-named strategic turnaround plans, they apparently don't have time to tackle the details, like sending secret shoppers into the stores to gauge what the customer—their only source of revenue—is experiencing. The latest grand strategy is code-named Polaris, which consists of a three-year plan to focus on the healthy parts of the business, address the unhealthy parts, and explore new revenue streams. The first two planks are business school gobbledygook; the third makes sense. In CEO Jeff Gennette's press release on Operation Polaris, which seems eerily similar to 2017's North Star strategy, one particular line caught our attention: "...we have shown we can grow the top-line; however, we have significant work to do to improve the bottom-line." Has he seen a graph of the company's revenues? Hardly proof they know how to grow the top line. Furthermore, "improve the bottom-line" is management-speak for close locations and cut jobs. And, in fact, Macy's plans to shutter 125 locations and can 2,000 employees. We're sure Jeff Gennette is a fine manager, but managers manage declines; leaders lead true turnarounds. Unfortunately, we don't see any real leadership at the firm. Perhaps the best bit of news Macy's received from their Q4 earnings release was the fact that same-store sales only fell 0.7% year-over-year. Hardly something to celebrate, but it did push the company's shares up 5%. We would love to invest in Macy's again—after all, it still has a tiny multiple of 5.45 and an enormous dividend yield of 8.91%, but we just don't believe management has a full grasp on reality.
DLTR
Dollar Tree drops 16% after lousy earnings report, lowered guidance by finger-pointing management. (26 Nov 2019) Dollar Tree (DLTR $81-$95-$120), owner of 7,000 discount stores under its own brand name and 8,200 under the Family Dollar name, just reported Q3 earnings, and the Street didn't like what it heard. The company, which is about one-half the size of Penn Global Leaders Club member Dollar General (DG), had revenues of $5.75 billion, which was up 3.8% from the same quarter last year, but earnings dropped 8.5% year-on-year, to $1.08 per share. What bothered investors the most, however, was the company's projection for earnings per share between $1.70 and $1.80 in the lucrative fourth quarter, well below expectations. Management placed much of the blame for the lowered expectations on the Section 301 tariffs set to hit on December 15th; tariffs which will target many of Dollar Tree's staple items. It is looking more and more likely that the 15 Dec tariffs will be put on hold, but we still wouldn't buy this company on the dip in the hopes of such a delay. Dollar General, we believe, is a much more efficient enterprise.
KSS
The retailer we love to hate, Kohl's, loses one-fifth of its value in one day. (19 Nov 2019) Multiline retailers were getting hammered on Tuesday as a major player reduced its guidance for the remainder of the year. Shares of Kohl's (KSS $43-$47-$76) were trading down by roughly 20% after the company reported that its same-store sales were flat (0.4%), total revenue was flat (-0.1%), and net income was off by 24%, to $123 million. The final straw was the reduced full-year guidance ahead of the busiest shopping period of the year. Unfortunately, the dour Kohl's report dragged down Nordstrom (JWN) and Macy's (M) as well, with each falling about 5%. Both of those retailers will report before the bell on Thursday. We wouldn't touch KSS, despite the 20% sale on shares. We thought the company's plan to accept Amazon returns was bizarre, half-baked, and reeked of desperation. We do, however, find both JWN and M intriguing. Two deep value stocks that actually still turn a profit, despite their troubles.
TGT
DIS
Penn member Target to build "shop-in-shop" areas for Disney at a number of its locations. (26 Aug 2019) Two of our favorite companies—both Penn strategy members—have joined forces, and we love it. Multiline retailer Target (TGT $60-$105-$107) has announced plans to build specialty "shop-in-shop" locations for Walt Disney (DIS $100-$134-$147) products in at least 75 of its stores beginning this fall. Target will feature over 400 Disney products, many of which had been exclusive to Disney retail outlets, to its customers both via these dedicated store sections, and a special web page on its site. These products, which will include Pixar, Marvel, and Spider-Man items, will be available for same-day pickup and delivery as well as two-day shipping. Shares of both companies have hit all-time highs within the past several months. In two challenging industries, how fitting that two of the biggest innovators should come together in a joint effort to spur sales. Yet another example of why we own both within the Penn strategies. Creative leadership.
JWN
Holy smokes, Nordstrom just jumped over 16% in one day. (22 Aug 2019) Sure, to be fair, it is a lot easier to jump double digits when you are sitting at $25 per share, but we'll take what we can get from beleaguered retailer Nordstrom (JWN $25-$31-$67) at this point. So, what was the catalyst for Thursday's big gain? An earnings report that announced a 5% drop in revenue from last year. Seems a bit weird, but analysts were projecting a deeper revenue decline and a smaller earnings per share (EPS) number. The upscale retailer made $0.90 in EPS against expectations for $0.75. Making the one-day spike even more bizarre, management cut its expectations for the year. Our guess is that a lot of retail investors are still hoping for a Nordstrom family-backed buyout, with the company being taken private. That's what we were thinking when we added shares of JWN to the Intrepid. At least we erased some of our losses on Thursday. Trying to time a buyout is tricky business at best, and a fool's errand at worst. We still see the company going private in the near future, with the announcement leading to a big spike in the share price.
TGT
​Penn member Target spikes nearly 20% in one session. (21 Aug 2019) It was the 21st of December, 2018. Investors had unfairly hammered down multiline retailer Target (TGT $60-$102-$90), along with most every other retail stock, so we swooped in and bought shares of the firm for the Intrepid Trading Platform at $62.39. Fast forward precisely eight months, and we are witnessing a 20%, one-day rally in the stock. The holding is now up over 65% from where we bought it in the last few weeks of last year. The reason for Wednesday's huge spike in share price revolves around the company's second quarter results and forward guidance. Revenue came in at $18.4 billion (a 4.8% jump) while same-store sales rose 3%. Against expectations for $1.62 in earnings per share, the actual figure was $1.82/share. Management also raised guidance for the full year, expecting earnings of $5.90 to $6.20 per share.  This has been such a well-run company since the hapless Gregg Steinhafel left, that we may ultimately end up moving it to the longer-term Penn Global Leaders Club.
JCP
A JC Penney board member just bought 1 million shares of the company, for $1 million. (13 Jun 2019) As our members know, earlier in the week we purchased shares of downtrodden retailer JC Penney (JCP $1-$1-$3) for $1.02 per share within the Intrepid Trading Platform. This was a pure trade, not an investment, as we expect a catalyst to push the price higher (like a private equity firm riding in to take the company private). It seems as though we are in pretty good company, as JCP board of directors member Javier Teruel, a former executive vice president of Colgate-Palmolive (CL), picked up just shy of one million shares of the 117-year-old company for around $1 million. This is Teruel's first new purchase of shares in two years. Just a reminder on what we consider a "trade" versus an "investment": the latter is based on a fundamental analysis of a company, while the former represents something that caught our attention in the technicals of a stock. We don't need to particularly like a company or an industry to make a trade—we simply want, and expect, a double-digit pop in price.
TGT
We bought Target on its darkest day, and it has continued to perform as expected. (22 May 2019) Having followed—and traded—multiline retailer Target (TGT $60-$78-$90) for decades, we liked what we saw on the 21st of December. Shares had been dropping like a rock since early November, and they plunged to around $62 per share four days before Christmas on dour analyst comments and an overall sour mood in the markets. (Who can forget the Christmas eve bloodbath?) While others were busy dumping it, we took the opportunity to pick up the battered retailer within the Penn Intrepid Trading Platform, with a target price of $78 per share. After Wednesday's stellar earnings report, our target price has been hit, but we are holding steady with the expectation for further gains. For the quarter, Target saw same-store sales growth of 4.8%, and digital sales growth of 42%. While Walmart (WMT) is busy battling Amazon (AMZN) for the mantle of low-cost and fast-delivery leader, we see Target continuing to solidify its niche clientele. We weren't touching the stock with tone-deaf CEO Gregg Steinhafel ("hack, what hack?") haplessly running the company, but Brian Cornell has the right strategy, and his team is delivering. We are raising our target price to $85 per share. Once again, further evidence that leadership—not the industry—makes or breaks the company. Target wisely dumped its sad sack CEO, but too many other companies settle for mediocrity in the C-suite. More often than not, the root of the problem can be found by delving into the cozy relationship between CEO and board.
JCP
​
As JC Penney's losses widen, the company's stock is close to breaking a buck—again. (21 May 2019) In February we reported on new JC Penney (JCP $1-$1-$3) CEO Jill Soltau's decision to dump furniture and electronics at the company's 850+ stores, with the former Jo-Ann Stores CEO re-focusing on fashion. It is still early in her reign, to be sure, but the latest earnings report didn't offer much in the way of hope. On revenues of $2.44 billion—a 6% drop from the same quarter last year—the retailer managed to bleed $154 million in losses. That was nearly double the $78 million it lost in the first quarter of 2018. Ironically, most of the losses stemmed from the lack of furniture and appliance sales. Comparable sales, which (sadly) include online orders, fell 5.5% Y/Y. Shares were off 8%—to $1.05—on the heels of the report. At $1 per share, many speculators may be tempted to jump in and buy some JCP. After all, a simple rise to $2 per share would double an investor's stake. That would truly be a speculative gamble, however, as this company could go either way over the next twelve months.
TGT
​2019.03.05
Penn holding Target shoots up on strong earnings report. Back near the end of December, as the retailers were getting obliterated, we saw—and bought—a grossly undervalued major multiline retailer: Target Corp (TGT $60-$78-$90). Picking the shares up at $62.39 within the Intrepid Trading Platform, we put an initial target price of $78 per share on the company. After handily beating expectations for both revenue and earnings, shares spiked Tuesday morning to within pennies of the target price we set just over two months ago. Same-store sales at Target rose 5.3% Y/Y, and digital sales surged 25%. The retailer's numbers fly in the face of the dour Commerce Department report on retail sales for Q4. We believed at the time that the mainstream press was giving that report too much oxygen, and the actual retail earnings reports are supporting that claim. As for Target, which is now up 25% from our purchase price, we will raise our target price—and our stop.  We love conflicting or skewed government reports; they offer a great opportunity to swoop in and buy industry players (whatever that industry might be) at unfairly-discounted prices. When a storyline is developing in the press, it is time to dig deeper and pick through the carnage for undervalued gems.​​
JCP
JC Penney to stop selling appliances; furniture will only be available online. (06 Feb 2019) It was just three years ago that JC Penney (JCP $1-$1-$5) CEO Marvin Ellison spearheaded "Project Silver," which brought back appliances to the store after a 33-year absence in the space. Now, with Ellison gone, new CEO Jill Soltau has made one of her first major strategic decisions: the store will stop selling appliances, and will only sell furniture online and in a very few, select stores. This actually makes a lot of sense, despite the argument that Sears' (SHLD) demise will have shoppers looking elsewhere in the mall for their household appliances. The segment has a very thin profit margin, and the company—whose shares are now trading at $1.33—does not have the luxury of using valuable space for low-margin items. The same goes for furniture, though they are not abandoning that business altogether. It is rather interesting to see how the background of each of JC Penney's last three CEOs impacted the decisions they made at the retailer. The bumbling Ron Johnson, who spearheaded the Apple store format when he was with the Cupertino tech giant, tried to bring the concept to JCP locations with segmented little "stores within a store." That alienated Penney's customer base quickly. Ellison, who had come from Home Depot (and who is now the Lowe's CEO) brought in appliances—akin to what is available at the home improvement stores. Jill Soltau's background is in retail fashion and fabrics, having just come from Jo-Ann Stores. She wasted no time in dumping the appliances to create more room for fashion. Hopefully, the third time (CEO) is the charm. We saw the demise of Radio Shack and Sears coming well before their respective management teams knew what hit them—they were too close to the problem to see it rationally. We don't feel that way about JCP. Its demise is certainly not set in stone, but it needs to act quickly and decisively. Once again, it will all distill down to leadership—either it will be there or it won't. And the livelihood of around 100,000 employees will be dependent upon the answer to that question. ​
SHLD
It is official: Sears is done. But it didn't need to be this way. In this coming Sunday's Penn Wealth Report, we will offer a brief epitaph for Sears, Roebuck and Company (SHLD $0.12-$0.22-$4), which became no more on Tuesday the 8th of January after a bankruptcy judge agreed to management's request for liquidation. Ironically, the store could be considered the Amazon of the early 20th century, riding in to save the masses in rural America from local merchants and their often questionable pricing tactics. The Sears catalog opened a world of goods to all people, with clearly-stated pricing. But the wrong management team put the chain, which bought KMart back in 2004, on a clear path towards irrelevance. Now, 50,000 employees—down from 300,000 six years ago—will lose their positions. We will discuss the demise of the firm in the next issue of The Penn Wealth Report.  ​​
Trading
Desk
Trade Action: This major multiline retailer is simply too undervalued to pass up. (21 Dec 2018) Members can see the purchase we just added to the Intrepid Trading Platform by signing in.  Trading Desk.  ​
SHLD
Sears (finally) pulls the trigger on bankruptcy, Lampert will change his title. (15 Oct 2018) Until it lost the honor to Walmart (WMT) in 1990, Sears (SHLD $0.34-$0.41-$6.83) was America's largest retailer. In April of 2007, the company had a share price of $133 and a market cap of $23 billion. Then Eddie Lampert and his eponymous ESL Investments began steering the company, along with the Kmart brand they picked up along the way, down the river of its slow, painful demise. Today, SHLD shares are selling for 40 cents, and the combined company is worth a paltry $44 million. As suppliers are no longer willing to take any of Lampert's refinancing deals, the company has been forced to file for bankruptcy. While Lampert will step down as CEO, he will remain chairman of the firm. Five years ago, the company had around 2,000 stores nationwide. Today, that number has fallen to 700, with another 142 to be shuttered by year's end. Lampert says the Chapter 11 bankruptcy proceedings will give the company time to speed up its "strategic transformation" and "return to profitability." It's hard to say whether he really believes that, but one thing is certain—the creditors do not. ​​
JCP
JC Penney falls double-digits (again) after CFO leaves firm. (28 Sep 2018) Granted, when your company's stock is selling for a few dollars a share, it doesn't take much to move the needle by double—or even triple—digits. Nonetheless, it was another bad headline JC Penney (JCP $2-$2-$5) did not need. The catalyst for the latest 10% drop in the stock was news that the company's chief financial officer, Jeff Davis, was leaving after fourteen months on the job. When someone who can see the financials in all their glory decides to bolt, it is probably not a good sign that a recovery is around the corner. The company is now down 50.5% year-to-date and has a market cap of $493 million. Just over a decade ago, JC Penney was a $20 billion company. This was not inevitable. Instead of installing a strong, forward-looking management team, the company made disastrously-bad decisions which led them to this point.   ​
TGT
Target's Christmas hiring plan portends good things for economy. (15 Sep 2018) Retail is often a strong harbinger for the overall economy. After all, if consumers are in dire financial straits or don't feel good about their economic prospects, they don't buy as much; and vice versa. This is why we should pay attention to what major retailers are doing, as they are an indicator of sentiment. To that end, multiline retailer Target (TGT $54-$88-$90) just announced their 2018 plans for the upcoming Christmas and holiday season. The company will hire 120,000 seasonal workers this year, which is 20% more than last year (which was more than the previous year). Workers hired for the holiday rush will start out making $12 per hour, and will receive the standard employee discount on purchases. Target's hiring plans are anecdotal, but we see a robust economic environment going into the 2018 Christmas season, with both consumer confidence and business confidence levels near all-time highs.
TGT
Target joins other major retailers with its own lights-out quarter. (22 Aug 2018) One year ago, conventional retail wisdom had Amazon (AMZN) cleaning the clock of every major bricks-and-mortar store in America. That narrative has certainly changed. Multiline retailer Target (TGT $54-$83-$84) joined the weeklong earnings celebration with its own blowout report on the second quarter. Both traffic and same-store sales at the 1,800 or so Targets around the country grew by 6.5% on aggregate from the same quarter last year—the best metrics in over a decade—and online sales grew 41% over last year. That is right in line with the digital growth we reported from Walmart (WMT) last week. Revenues rose from $16.43 billion in Q2 of 2017 to $17.55 billion last quarter, and earnings rose from $1.22 to $1.47 per share over the same period. CEO Brian Cornell attributed the strong quarter to the company's turnaround plan, and the "strongest consumer environment" he has seen in his career. Target shares were trading up about 6% on the earnings report.  ​
DDS
Retail, the Bad: Dillard's reports a loss of $2.9 million in the second quarter. (16 Aug 2018) The headlines coming from two Arkansas-based retailers elicited very different responses from Wall Street. While Walmart (WMT) was blowing away the quarter, Little Rock-based multiline retailer Dillard's (DDS $50-$70-$99) was reporting a $2.9 million loss, or -$0.10 per share, during Q2. Granted, that was not as bad as the $0.41 per share loss expected, but it was still bad enough to drive the stock down over 15%. Net sales did climb a bit from Q2 of 2017, rising from $1.43 billion to $1.47 billion, and there were no giant red flags in the report, so why the drop? Dillard's had been on a tear for much of the year, well outperforming the overall market, so the drop was probably just due to simple profit-taking to protect gains. There is a growing angst among investors with respect to traditional, multiline retailers such as Dillard's, Macy's (M), and JC Penney (JCP). Many retail analysts question their ability to continue to grow in the age of Amazon (AMZN). These companies' respective success with their omnichannel marketing (think online) has been spotty, at best. Those which are unable to attract customers, en masse, to their online sites will continue to flounder. And Dillard's has yet to prove it has omnichannel figured out. ​
JCP
Retail, the Ugly: JC Penney loses one-quarter of its value in one trading session. (16 Aug 2018) A serious case of déjà vu writing that headline—it seems as if we have been here before. What would the board of directors at storied retailer JC Penney (JCP $2-$2-$5) give to go back in time prior to the hiring of bumbling (our opinion) CEO Ron Johnson? Incredibly, just over a decade ago, JCP was an $18 billion large-cap. Today it sits, lonely and abandoned, as a $572 million micro-cap, on the heels of a 25% one-day drop in the price of its shares. After Ron Johnson, the company needed a Hail Mary pass in the form of a great CEO; instead, they got Marvin Ellison. At least Ellison had the class to say he let shareholders down (as he was heading out the door to take over Lowe's). During Thursday's earnings call, the company admitted to having alienated its core group of middle-aged customers in an attempt to chase millennial shoppers. We could have predicted the outcome of that futile effort. Management at the company had predicted a full-year forecast of between -$0.07 and +$0.13 per share. On Thursday, they revised that down to somewhere between an $0.80 and $1 per share loss. That is a staggering difference. So, the 116-year-old company now sits without a CEO, loaded with debt, and with a share price it hasn't seen since the Great Depression. That is depressing.
M
Macy's falls 14% despite a second-quarter beat. (15 Aug 2018) It wasn't a bad earnings report. Revenues came in at $5.57 billion versus $5.55 billion in Q2 of 2017, and same-store sales picked up by 0.5% versus an expected loss. Furthermore, Macy's (M $17-$37-$42) raised its full-year expected earnings from $3.95 to $4.15 per share and reported double-digit online sales growth for the quarter. Why, then, did M shares drop 14% within minutes Q2's results? The only reasonable answer is simple profit taking. Macy's share price had run up around 60% YTD, and the 14% drop just takes shares back to where they were trading a month ago. What's our fair value estimate on the stock? Around $35 per share. 
JCP
(22 May 2018) JC Penney's mediocre CEO bolts for Lowe's. Read more at Specialty Retail. 
JCP
Macy's might have set the retail tone for the quarter, but JC Penney isn't following the script
(18 May 2018) After retailer Macy's (M, see below) released an upbeat earnings report for the quarter, retail analysts hoped that the store's peers would follow suit. Unfortunately, beleaguered JC Penney (JCP $2-$2-$6) went a different direction. Marvin Ellison's company reported a first-quarter loss of 22 cents per share on revenue of $2.67 billion. That revenue figure represents a 4.1% drop from the same quarter last year. What was Ellison's excuse? He said the quarter was impacted by a cool spring and the closure of 141 JCP stores in the last fiscal year. Um, OK.  Investors weren't buying it: shares fell about 11% on the day. At $2.59 per share, deep value investors may consider jumping in. Before doing so, consider the fact that the company has lost money six out of the last seven years (it cleared a cool $1 million two years ago). 
M
Macy's pops 11% after surprise earnings beat and raised guidance for year
(16 May 2018) After too many quarters in a row to count, centenarian retailer Macy's (M $17-$33-$33) popped nearly 11%—to a new 52-week high—after releasing a surprisingly-good quarterly earnings report. A strong economy, low unemployment, and the closing of a large number of unprofitable stores were all factors in the 4.2% jump in same-store sales over the same quarter last year. Interestingly, the company announced a new initiative which will allow employees to share in the booty based on the performance of their store. Now that actually might make some of the employees I see standing around while I need help actually step up to the plate and do their job. In the first quarter revenue rose 3.6%, to $5.54 billion, and profit jumped 78% from 2017Q1, to $139 million. One other interesting tidbit: the company announced the purchase of NYC concept store STORY, which is known for changing highlighted fashions and designs every month or two. Even at $33.17, Macy's p/e is still an incredibly low 6. We just wish we had more confidence in the company's ability to change the customer service experience.
M
They might as well...Macy's to roll out mobile checkout at all stores by end of year
(19 Mar 2018) The only thing more frustrating than wading through the mess of clothes at the Macy's (M $17-$29-$31) stores we visit is trying to find someone to help us checkout when we do find something we want to buy. At least the company is about to do something about the latter problem. At the annual ShopTalk conference in Las Vegas on Sunday, the retailer announced that it would place mobile checkouts at all of their stores by the end of 2018. This is the way it will go down: a shopper will scan the bar codes of the items they wish to buy using their Macy's app on their smartphone, with all appropriate discounts automatically adjusting the price. When done, the shopper will head to the mobile checkout counter where an associate will remove the security tags and check that all items were scanned. The cynic in us now sees that line becoming unbearable.
TGT
Target up about 4% pre-market after announcing solid holiday numbers
​(09 Jan 2018) Multiline retailer Target (TGT $49-$67-$72) joined the ranks of Macy's (M), JC Penney (JCP), and Kohl's (KSS) in announcing better-than-expected sales figures for the 2017 holiday season. For the busiest shopping months of November and December, TGT notched a 3.4% jump in physical store and online sales, compared to a 1.2% decline in the previous year. The company had projected 0% to 2% growth for the period. Shares jumped about 4% pre-market on the news. 
WMT
Penn member Wal-Mart pops over 4% after affirming guidance, announcing buyback
(10 Oct 2017) Wal-Mart (WMT $65-$84-$84), stock #38 in the Penn Global Leaders Club, punched through a new 52-week high on Tuesday after affirming its strong forward-looking guidance and announcing a $20 billion share buyback program. The company reiterated expectations for at least a 3% jump in sales for FY19 and a 40% spike in e-commerce sales. This is what we really love: WMT plans to open at least 1,000 online grocery points in existing US stores over the next year as it goes full-bore against the Amazon/Whole Foods alliance.
M
Macy’s attempts to jump-start sales with revamped Star Rewards
(27 Sep 2017) We’ve all heard of the 80/20 rule: 80% of a company’s sales come from the top 20% of its customers. When it comes to Macy’s (M $19-$22-$45), try this one on for size: 50% of the company’s $25 billion in annual sales comes from the top 10% of its customers, as defined by someone spending at least $1,200 per year at the multiline retailer’s stores. Macy’s new CEO, Jeffrey Gennette, fully appreciates his most loyal customers, and is revamping the firm’s Star Rewards program to thank them. Under the new program, “platinum” members (those spending over $1,200 per year) will receive a 5% store credit back on any and all products they buy, as well as free shipping. Tier two Star Rewards members ($500-$1,200 pear year) will receive free shipping. All members of the program can use their 25%-off coupons without blackout dates. The company said it will roll out further enhancements in 2018. Shares were up on the new program details. We continue to see Macy's, which is a member of the Intrepid Trading Platform, as highly undervalued.
JWN
And this is why we bought the company: Nordstrom close to deal to go private
(13 Sep 2017) ​Less than three months ago, on 22 June, we picked up shares of multiline retailer Nordstrom (JWN $40-$45-$63) in the Intrepid Trading Platform based on rumors we were hearing about the company going private. This morning, Nordstrom popped double digits as the rumors seem to be coming to fruition. The Nordstrom family is reportedly talking to California-based private equity firm Leonard Green & Partners about the deal, and to banks about getting the $8 billion or so needed to fund the transaction. The family, which owns about one-third of the company’s outstanding shares, is tired of seeing the share price get beaten up in the markets due to the dour industry outlook. Going private would allow them to formulate a long-term strategy without Wall Street analysts dissecting every decision. What did we do with our holdings? Clients and members can take a look at the Trading Desk.      
M
In big tech push, Macy’s hires away eBay executive as new president
(22 Aug 2017) Penn Intrepid Trading Platform member Macy’s (M $19-$20-$45) has a long way to go before hitting our target price (OK, 9% just to hit our buy price), but the stalwart US retailer popped nearly 4% at Tuesday’s open on news that the company smuggled away one of eBay’s (EBAY) top executives to take on the role of Macy’s new president. Hal Lawton, just 43 years old, is a digital selling genius. At eBay he turned around the company’s flagging sales after its split from PayPal (PYPL). Before eBay, Lawton worked at Home Depot (HD), helping grow that company’s digital business from $400 million to $2 billion. We already loved Macy’s for its deep value and massive real estate holdings. This pickup just solidifies our opinion of the firm.
TGT
Start of a turnaround? Target beats on sales, raises guidance
​(16 Aug 2017) After an endless string of bad news, multiline retailer Target (TGT $49-$55-$79) finally has something to smile about. Revenues came in better than expected (at $16.43 billion for the quarter), same-store sales actually climbed (1.3%) from last year, and management raised its expectations for 2017’s full-year sales and profits. Speaking of profit, net income for the quarter was flat from last year—at $672 million—but there are new signs of life for this struggling retailer. If investors believe in the turn-around story, here’s the cherry on top: TGT has a 4.56% dividend yield. 
JCP
(11 Aug 2017) For hapless JC Penney, nothing is clicking; stock hits a 45-year low.
Combine a seismic shift in the retail world (thanks to technology) with two lousy CEOs in a row and what do you get? JC Penney (JCP $4-$4-$11) sitting at a 45-year low, tickling a market cap below $1 billion. The retailer opened Friday by falling 17%, to $3.85, as the just-released earnings report showed a loss of 9 cents per share, 50% greater than the street was expecting. The current bumbling CEO, Marvin Ellison, reiterated guidance for the year, which is crazy. The performance required to achieve that level over the next two quarters is simply unachievable. What’s the catalyst for an uptick in share price? The inevitable discussions of taking the company private. Meanwhile, our current holding in the industry, Nordstrom (JWN), was in the green for the day.
M
(10 Aug 2017) Nice change of pace: Macy's revenues beat expectations; stock pops, then drops.
Investors just don’t seem willing to take a chance on the big clothing retailers yet. Take Macy’s (M $21-$23-$45). The company earned more than expected last quarter ($5.55 billion), but the trajectory of comparable-store sales is still headed south. Sales were off 5.4% from last year, and comp-store sales fell about 3% year-over-year. Here’s what we see: Yes, the environment is challenging; but Macy’s has a P/E of 12, is sitting near a one-year low, and is not going out of business (like Sears or, potentially, JCP). We own Nordstrom (JWN) in the space right now, but M looks tempting.
FOLLOW UP: M dropped 4% at open; we have added it to the Intrepid Trading Platform.
SHLD
​AMZN
(20 Jul 2017) A sign of desperation leads to an 18% jump in the share price of Sears Holdings Corp
True, it doesn't take much for a company's stock which is trading in the single-digit range to jump 18%. That's what happened to Sears Holdings Corp. (SHLD) at Thursday's open following news that the beleaguered retailer would start selling its Kenmore line of appliances on Amazon (AMZN). We are talking about a company losing $14.09 in earnings per every share of stock outstanding. This was not a win for Sears; it was a sign of desperation. The fact that you would start using the firm second-most responsible for your demise (Eddie Lampert holds the top spot) as a vehicle to sell your products proves that we are in the final innings of a very long game. The 18% price jump brought the shares to just above $10.
JCP
(11 Jul 2017) In another bad omen for the chain, JC Penney's CFO is leaving the firm.  When was the last time store closures turned out to be the key to a retail chain's turnaround story?  There is only one reason that JC Penney (JCP) is closing another 138 stores by the end of the summer, and that is to keep the ship from sinking faster than it already is.  The latest cannonball hit to the masts came today as the company's veteran CFO, Ed Record, announced he would be leaving the retailer.  CEO Marvin Ellison, of whom we are not a fan, really blew some smoke:  "The timing of his departure coincides with a demonstrated sales performance improvement...."  Huh?  Is that why he left—his job is done?  Hey Marv, you do realize we can see the same numbers on the financial report that you do, right?  JCP's share price is currently $4.57.
TGT
(19 Jun 2017)  Casper's plan to be acquired by Target didn't pan out, but it did find a sugar-daddy.   You've probably seen the commercials: a couple receives a big box at their door, opens it up, and out rolls a big Casper mattress.  In an increasingly crowded niche market, the young (2014) startup is out to reinvent the sleep industry.  Tackling problems like how to get a queen-sized mattress up to the second floor without taking out a light fixture, or how to allow customers to avoid the pushy, high-pressure mattress salesmen, the company's message quickly resonated with a sleep-deprived American consumer.  Retailer Target (TGT $49-$53-$79) took notice, and acquisition talks began in earnest.  While the talks fizzled out, the $29 billion multiline retailer made a different offer: it would lead $170 million funding effort to, ultimately, help the company go public.  This past Sunday Target began selling Casper mattresses, pillows, and sheets on its website.
DG
(01 Jun 2017)  One specific corner of the retail industry is doing just fine, thank you.  With all of the horror stories swirling around the retail industry right now, is it any wonder that nearly all of the players, from Abercrombie to Macy's, are getting pounded?  We say "nearly all" because one niche is holding up fairly well—the discount retailer.  Dollar General (DG $67-$78-$97), for example, spiked up nearly 7% today on the back of a decent earnings report.  On quarterly revenues of $5.6 billion, a 6% increase from last year, the company earned about $1 (fittingly) per share—matching last year's profit.  Outlook is strong as well, with the company planning to open another 1,290 new stores this fiscal year.  DG brought the rest of the discount stores along for the ride, with Big Lots (BIG), Dollar Tree (DLTR), and Five Below (FIVE) all having a strong Thursday session.
TGT
(01 May 2017)  Everything is down at Target, including the CEO's paycheck.   A year ago, Target's (TGT $53-$56-$81) share price was $80; now it is $56.  CEO Brian Cornell, who took over for arrogant ("we have the safest payment system in retail") former CEO Gregg Steinhafel, brought in a cool $28 million paycheck in 2014; now he is making just $11.3 million.  Cornell's compensation was based on two key performance metrics: EBIT and adjusted sales.  After the company missed both targets, the board slashed his cash and stock compensation by about one-third, according to recent documents filed with the SEC.  In late Feb we toyed with the idea of picking up some TGT for a short-term pop in the Intrepid Trading Platform.  We didn't.  Since then, the stock is down $2 per share and the P/E remains a decent 12.  We remain worried about the declining sales figures and a lack of a cogent strategic plan.
HBC.TO
​M
(15 Mar 2017)  Hudson's Bay turns away from Macy's, toward Neiman Marcus.  We have always been a big fan of Macy's (M $29-$31-$46), despite their recent foray into politics.  That is why we were upset to learn that Canadian retailer Hudson's Bay (HBC.TO $9-$11-$12) looked to acquire the American retail stalwart to tap into their vast real estate empire.  After being rebuffed, instead of going hostile they turned their sights on a new target: Neiman Marcus.  Neiman's planned January IPO fell apart due to the firm's $5 billion debt load and other issues.  Although the firm is headquartered in Dallas, it is already owned by a Canadian interest: the Canada Pension Plan Investment Board.  Hudson's Bay, feel free to take over that headache and leave our Macy's alone.
TGT
(28 Feb 2017)  Target hammered after lousy earnings report.  "Upscale discounter" (just made that up on the fly) Target (TGT $63-$58-$84) plummeted 13% at the open, to a new 52-week low, after giving a rotten Q4 earnings report.  Revenues of $20.69 billion for the quarter were 4.35% below Q4 of 2015, and same-store sales fell 1.5%.  We're not real thrilled with CEO Brian Cornell's excuse, either: "...impact of rapidly-changing consumer behavior."  That might work for a Best Buy competing with the likes of Amazon, but not for a discounter where shoppers go on a weekly basis to buy groceries and the like.  That being said, with a p/e of 10 and the share price pounded down to a multiyear support level, we may just pick some up for our Intrepid Trading Platform.  If we do, members will see it on the Trading Desk.
SHLD
(06 Feb 17)  Sears just lost (another) 30% of its value in two weeks.  What a difference a decade makes.  Ten years ago, almost to the day, Sears (SHLD $6-$7-$19) was selling for $193 per share.  Pity the poor fool that bought the retailer back then.  Just two weeks ago, the cash sieve that operates roughly 700 namesake stores and 800 K-Marts was selling for $9.33 per share—a 30% premium to what it closed at today.  Meanwhile, Moody's and Fitch have both downgraded the creditworthiness of the company's bonds.  No pending train wreck has ever been so well telegraphed.
SHLD
​SWK
Sears is going the way of Radio Shack, sells major brand names

(06 Jan 2017)  When you think of withering department store Sears (SHLD), which brand names immediately come to mind?  How about Craftsman, Kenmore, and maybe DieHard car batteries.  If anyone needed convincing that Eddie Lampert won’t rest until the company he runs is run out of business, try this on for size: the firm just reached a deal to sell Craftsman to Stanley Black & Decker (SWK) for $900 million, while it continues to look for suitors to buy Kenmore and DieHard.  

Lampert wanted Sears not so he could implement some grand growth strategy; he came in to raid the company of its vast real estate holdings, and that’s a lot easier to do if you are at the helm.  He merged with other retail dog Kmart because it had some lucrative real estate as well—at least as soon as the shanty store built on the grounds is bulldozed.
​
Along with selling off its iconic brands, the firm announced the closing of another 108 Kmarts and 42 Sears locations around the country.  This is on top of the 89 it shut down last quarter.  Considering the retailer hasn’t earned a “real” profit, i.e. from selling product rather than real estate, in a long time, investors would be crazy to touch this 124-year-old former gem.
Our Macy’s Option Spiked 41% this Morning; Taking Profits
(23 Nov 15: Client Update) On Thursday, 18 Nov 15 we bought a Macy’s Jan 16 call with a $39 strike price for clients in the Intrepid Trading Platform for $1.87.  It spiked this morning and we closed the position at $2.63 for a 40.64% gain.  We still own the underlying stock in the Global Leaders Club.  

Don’t Buy Blather About the American Consumer in Retreat
(18 Nov 15) Do you want to know one of the best secrets for making money in the stock market?  Listen intently to the financial media when they are in full-froth mode...then take advantage of the carnage that follows.

Case in point: the sudden drop in well-run department stores like Macy’sM and NordstromJWN, and the ensuing panic by the media.  After less-than-rosy quarterly reports by these exemplary companies, and sudden double-digit drops in their respective stock prices, the media had their boilerplate headline:  The American consumer is in full retreat mode.  

Bull.  Sure, it would be nice to believe that average Americans were suddenly living within their means and tucking their lower-gas-prices-windfall away in their retirement accounts, but that is sophomoric thinking.  Which would explain why the media blockheads glommed on like feeder fish.  I used to get disgusted by the herd mentality reporting, until it became clear that an astute investor could take advantage of their misguided rants.  

For example, Macy’s fell double-digits in one day to hit a 52-week low of $37.75 on 17 Nov.  The company’s P/E ratio fell to single digits.  Likewise, Nordstrom dropped to $50.43 on 13 Nov, with a P/E of 12.  These are crazy-low valuations for the benchmark retailers, and smart money would have swooped in (we did).  

Not to disparage all financial journalists; some perform their due diligence, approach stories with an analytical eye, and refuse to jump on the bandwagon.  When using a behavioral finance approach to selecting undervalued stocks, you want to be able to immediately identify your “go-to” group of Keystone Cops who report with a visceral abandon.  Think Jim Cramer on CNBC, Gerald Seib at the Wall Street Journal, or pretty much any reporter at Bloomberg Businessweek. 
 
When you sense that the heat of a story is playing with these journalists’ vacuous brains, or they mutter hyperbolic words like “disaster” or “train wreck,” it may be time to do your own research on the topic company or industry and swoop in while everyone else is running for cover.   

(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 46.)  

 Dollar Tree Agrees to Buy Family Dollar
(28 Jul 14) During the Great Recession, dollar stores found themselves flush with new, cost-conscious customers. As the U.S. continues it's dilatory recovery, these penny-pinching retailers have struggled to hold on to those customers.  In a move that really had to take place, though we hate to see Carl Icahn in the middle of it, Dollar TreeDLTR has agreed to buy Family DollarFDO for about $8.5 billion in cash and stock.
​
Icahn had been accumulating shares of Family Dollar recently, and now holds over 9% of the company's stock. He has been pressing for a deal, threatening to replace the retailer's board.  Earlier in the month, Family Dollar enacted "poison pill" actions to flood the market with new shares to prevent any one activist from acquiring a controlling stake.  That being said, it appears that the deal will be a relatively friendly one, with FDO's CEO remaining on with the new company, reporting directly to DLTR's CEO Bob Sasser.

In a crowded market, with Dollar GeneralDG on top of the pack, the deal merges the second and third players in the space.  It was thought that DG would go after Family Dollar, but when the company balked, Dollar Tree--with the aggressive Icahn--swooped in to make the deal happen.  

Icahn will make in the ballpark of $159 million when the deal goes through.
Content copyright 2024, Penn Wealth Publishing, LLC.  All rights reserved.

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Any opinions expressed are those of Penn Wealth Publishing, LLC and are current only through the date posted.  We reserve our First Amendment right to use parody, sarcasm, satire, and irreverent humor to analyze the current state of business, finance, domestic issues, and global affairs; and to speak freely, outside the zeitgeist of political correctness.  These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.  Past performance is no guarantee of future results.  Always consult your investment professional before investing any money. All attempts to ensure accuracy in the data provided have been made, but always verify at the source before investing. This site is for informational purposes only; Penn Wealth Publishing, LLC is not responsible for any losses incurred. 

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