Thinking Retail Stock? Swap Out Sears for Dillard’s

Sears (Nasdaq: SHLD ) said earlier this week that it would begin selling Barnes
& Noble's (NYSE: BKS ) latest Nook e-reader. Unfortunately, like everything
Sears does, its a day late and a dollar short. Although there are plenty of
admirers out there of Sears Chairman Eddie Lampert, I have no idea why. Sears
continues to deliver nothing but misery for shareholders yet investors continue
to buy its stock. Dont. Consider Dillards (NYSE: DDS ) instead. Heres why: Sears
just announced a widening third-quarter loss that was worse than Wall Street had
expected. Factors affecting the poor performance, according to a report by the
Associated Press, include bad results in Canada, lower consumer electronics
sales and import clothing sales at the company's Kmart stores. Same-store
sales dropped 0.7% at its Sears stores and 0.9% at its Kmart stores. There just
arent any bright spots at Sears and there hasnt been for some time. The company
has had 18 consecutive quarters of declining sales. That will test the patience
of almost anyone, but unfortunately, Lampert appears to have very little. Since
buying Sears back in 2005, hes tried everything but the kitchen sink to get the
department store relevant again. Very little has worked. Now hes trying smaller
formats, boosting online sales and taking its DieHard, Craftsman and Kenmore
brands on the road. Costco (NASDAQ: COST ) now sells Craftsman tools. Thats
great from a licensing standpoint, but it doesnt fix the main problem that Sears
is a dreadful place to shop. Since 2005, Sears has spent twice as much buying
back its shares as it has on fixing up its stores. That will always be a losing
proposition in retail. One area where Sears and Dillards are comparable is in
real estate – both companies own some of their store locations. I can remember
when Lampert bought Sears and all the financial gurus talked about its lovely
real estate assets. Where are those same analysts today? The truth is Dillards
actually owns a much larger percentage of its stores than Sears does. By my
estimation, Dillards owns approximately 87% of its stores compared to about 30%
for Sears. It is for this reason that Dillards announced in January that it was
going to create a real estate investment trust to own and operate its holding.
The department store would lease its locations from a company division. In good
times and bad, this structure would allow Dillards to pay a decent dividend to
shareholders. Any way that the company can unlock value in its assets to the
benefit of shareholders always makes sense. As a rule, retailers probably
shouldnt own real estate, but Dillards is a family business going back several
generations. Since its too late to turn back the clock, it might as well make
lemonade out of lemons. Dillards third-quarter report was the polar opposite of
Sears. Highlights included a 127% increase in earnings per share and a
same-store sales rise of 5% and. During the quarter, it repurchased $123.7
million of its stock at an average price of $42.66. Considering its shares
closed on Wednesday at $49.87, it was a wise purchase. For the first nine months
of the year, it made $2.17 a share, more than double the same period last year.
It definitely is moving in a different direction than Sears. As of this writing,
Will Ashworth did not own a position in any of the stocks named here .