Dueling Fools
Shears to Sears
January 6, 1999
Sears Bull's Pen
by Rick Munarriz ([email protected])
Back in high school, the first job I ever had was selling maintenance agreements for Sears. It was a hard sell most of the time given the combination of Sears quality and the frugal clientele. But none of the challenges I faced in my youthful telemarketer days can compare to my Sears selling job this week.
Why would anyone want to back Sears? I'm sure Warren will note that department stores are dead. Obit city! They can't compete with the Wal-Marts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> of the discount world in terms of pricing. They lack the niche attraction of the specialty retailers. But hold off on that shovel there, Fool. You won't find Sears six feet under. On the contrary. Look up. Way up. There, high above the seemingly never-ending Sears Tower lie the prospects of the Sears of tomorrow.
Am I trying to sway you with skyline imagery? Let's consider a few things. Same store sales at Sears over the nine months leading up to Thanksgiving are actually up 1.1%. That's in line with Federated Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FD)") else Response.Write("(NYSE: FD)") end if %> and actually a stronger showing than peers JC Penney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> and Dillard's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDS)") else Response.Write("(NYSE: DDS)") end if %>. The last three months may have been rough for Sears but, last I checked, you're not dead if you still have a pulse. Sears has a pulse.
Share price Jan 1999
12/29/98 EPS P/E
Sears $41 1/8 $3.37 12.2
Federated $48 13/16 $3.04 16.1
JC Penney $43 13/16 $2.99 14.7
Dillard's $28 15/16 $2.58 11.2
The sector looks like a bargain, with all four of these chains expected to grow earnings at a double-digit rate in the year ahead. But Sears is more than just a department store. Most of the company's $1.3 billion in earnings doesn't even come from the stores themselves. Sears is a financial services giant thanks to its vibrant credit card business. Say what you will about shopping trends -- is there anybody here who can deny that we are going from a greenbacks society to a plastic one?
The company is not a slave to retail. It never has been. From interests in real estate to insurance to online service Prodigy, for better or for worse, Sears has surrounded itself with diversified growth options. When they don't pan out, Sears has been quick to sell or spin-off the subsidiaries.
That's nimble. Sure, it was a bit amusing to see Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> eclipse Sears in market capitalization last month. I wonder how long it will take for Amazon.com to generate the $42 billion in sales that Sears has recorded over the past four quarters -- or the $1.3 billion in earnings?
But what really has me nervously giddy is the fact that most folks don't realize how cutting edge Sears is -- online. The company's Craftsman website allows for the purchase of more than 3500 different namesake tools. Over at the Sears-owned Wish Book, users can do more than buy from a selection of 2300 gift ideas. They can set up a gift registry and e-mail the want list. Remember, Sears is no stranger to online ways after its early stake in Prodigy.
That is why the Sears website itself is more than e-tail. It's e-community. There are regularly scheduled chats for fans of the department store to talk shop electronically. Just last month Bob Vila came in to field user questions. Who knows what all this can grow into?
While the company is having problems luring folks to see the softer side of Sears, hard goods, the high-ticket bread and butter, remain strong. Strong -- like the Sears Tower itself. High as the eye can see even with the clouds on the horizon.