Can Turnarounds Save J.C. Penney, Sears and Best Buy?

The three retailers seem to be finding their way, but none is showing that it has the necessary ingredients for a sustainable turnaround.

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Some of the country's most troubled retailers had moments of resilience in May. Shares of Best Buy (BBY) rose 6 percent last week after posting better than expected profitability in its latest quarter. The week before that it was shares of J.C. Penney (JCP) soaring 11 percent after posting a surprising spike in comparable-store sales. It was the fourth week in a row that the department store operator's stock had closed higher, rising nearly 30 percent in that time.

Sears Holdings (SHLD) hasn't had a bull-affirming pop lately. Last week's quarterly report was a disaster. However, the parent company of Sears and Kmart is still trading higher than it was at the end of 2011, even though it's been posting huge losses along the way.

The three retailers may seem to be finding their way. Margins are improving at Best Buy. Comps are ticking higher at Best Buy. Sears is selling off assets to fortify its finances. However, all three chains are still struggling.

Penney Dreadful

J.C. Penney is working on a turnaround, but it's not the first time that the meandering department store chain has tried to fix its past mistakes. Ron Johnson was brought in as CEO in the fall of 2011, having worked merchandising magic at Target (TGT) before helping kick off Apple's (AAPL) wildly successful Apple Store concept.

Johnson thought that the key to making J.C. Penney was a "town hall" makeover where name brand "mini-stores" would populate its selling space. Shifting from sales to everyday low pricing was supposed to wean shoppers off of discounting.

It didn't work. Less than two years later, Johnson was gone. A former CEO returned. Sales continued to slide, but then sales started to stabilize last year. Comparable-store sales rose 6.2 percent during the first quarter of this year. That's great, but let's not forget that same-store sales slipped 16.6 percent the year before and 20.1 percent the year before that.

Add it all up, and a typical J.C. Penney store is still selling nearly 30 percent less than it was three years ago.

Buy Buy Birdie

Best Buy's problem is declining sales. It surprised the market by growing its earnings per share in its fiscal first quarter, but sales continued to slide. Things aren't going to get any better in the near term. Best Buy warns that same-store sales will keep going the wrong way through at least the next two quarters.

Best Buy also had its own CEO shuffle a couple of years ago, and Hubert Joly seems to be making the best of a rough situation where physical media is being replaced by digital delivery and folks are flocking online for the devices to play the new digital media.

Despite the strides that Joly has made, things will continue to be challenging until sales pick up again. That could happen as soon as this holiday shopping season, but that doesn't seem likely given Best Buy's recent sales momentum.

Tears for Sears

Sears Holdings has been a mess for years, and CEO Eddie Lampert's combination of Sears and Kmart hasn't helped. Instead of helping lift Kmart up to the performance level of Sears, we've seen the ] opposite.

It's not easy to grow when you're cutting costs without passing on those savings to shoppers. Third-party studies show that Kmart can't compete on pricing with its two larger discount department store rivals, and the once-storied Sears chain, with notorious displays, has buckled under joint ownership.

Sears Holdings has been able to sell off assets to raise money, but profitability has been elusive. Analysts see the red ink continuing for years. Unless something dramatic happens, it will eventually run out of money, real estate or other assets to unload. Its situation is more dire than what's happening at J.C. Penney and Best Buy, but none seems to have the necessary ingredients for a sustainable turnaround.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and owns shares of Apple.


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