Best Buy, J.C. Penney, and Barnes & Noble Shares Soar, But So What?
The last week of February was a redemptive week for three fading retailers, but it's hard to argue that any of them will remain market darlings for long.
J.C. Penney (JCP) was one of the market's biggest winners, soaring 29 percent after posting improving quarterly results. The struggling department store chain posted a narrower loss than analysts were forecasting, posting positive comparable-store sales during the holiday period for the first time in a couple of years.
Barnes & Noble (BKS) also moved higher by 8 percent last week on strong financial results. The bookseller that outlasted Borders came through with a quarterly profit of 86 cents a share, blowing past the $0.61 a share that Wall Street pros were targeting. Its Nook business is still suffering from sharp declines, but its actual superstores are holding up surprisingly well. An analyst at Maxim Group boosted his price target on the shares from $20 to $32.
%VIRTUAL-article-sponsoredlinks%Best Buy (BBY) also got a boost from a better than expected report during the holiday quarter. Best Buy's profit for the holiday period declined to $1.24 a share, but that was well ahead of the $1.01 a share that analysts were expecting. Shares of Best Buy also rose 8 percent on the week.
These chains seemed to be on the way out last year, and all of them have brought in new CEOs over the past two years. Seeing the stocks move at least 8 percent higher and as much as 29 percent higher last week may suggest that reports of their deaths have been greatly exaggerated, but let's not assume that the storm clouds have cleared at any of them.
The troubled Ron Johnson era ended at J.C. Penney last year. The retail guru -- who had been instrumental in turning Target (TGT) from "cheap" into "cheap chic" before heading to Apple (AAPL) in time to start rolling out the wildly successful Apple Store chain -- flopped at the meandering department store chain.
Investors cheered when Johnson arrived at J.C. Penney in late 2011. His plan was to put an end to the chain's discounting- and coupon-heavy practices, and reorganize the stores to center around trendy third-party brands. Alas, Johnson's vision was too radical, alienating the remaining J.C. Penney customers without winning over new ones. He was fired 11 months ago, replaced by an earlier regime that the board had originally tried to move away from.
Despite last week's huge pop, J.C. Penney is still losing a lot of money. The holiday quarter's positive comps are a good sign, but its average store is still selling a lot less than it did two years ago. The identity crisis continues.
Barnes & Noble was already trending higher a week earlier when an investment firm was offering to pay a premium for a 51 percent stake in the company. It may seem like an opportunistic play, but do we really think that traditional books will regain their popularity?
Barnes & Noble responded to the e-book trend a few years ago by introducing the Nook to take on the Kindle, but sales have been falling sharply over the past several quarters. It's hard to compete against Amazon (AMZN) when it's willing to sacrifice profitability on Kindles for the sake of market share. It also doesn't help that Apple's iPad and other tablets also double capably as e-readers.
Best Buy shares more than tripled in 2013, but it's been a different story in 2014. Despite last week's bounce, the leading consumer electronics retailer has seen its stock shed a third of its value this year.
It's been a challenge for Best Buy to keep customers coming back to its stores given that online retailers offer cheaper prices, and that the DVDs, CDs, video games and software discs that used to attract much of its traffic have been supplanted by digital media that consumers can buy from the comfort of their couches.
Despite the upbeat market's response to the quarterly reports, comps at Best Buy and Barnes & Noble were negative during the holiday quarter. The market was braced for worse from all three companies, but all three retailers have a long way to go before we can seriously begin discussing them as potential turnaround stories.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com, Apple and Barnes & Noble.