Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Are Department Stores Dying?

Examining Dillard’s (NYSE: DDS) and Kohl’s (NYSE: KSS) is an excellent way to answer the question are department stores dying?

Kohl’s and Dillard’s are two of the nation’s most prominent department store brands. For example, Dillard’s Inc. (NYSE: DDS) operates 255 full-line department stores in 29 states. Meanwhile, the Kohl’s Corporation (NYSE: KSS) could be America’s largest traditional department store operator with 1,159 stores, Statista estimates.

Coronavirus is hurting both Dillard’s and Kohl’s. Dillard’s sales fell by 47% in the first quarter of 2020, Retail Dive reports. In addition, Dillard’s has furloughed 65% of its employees and cut store hours by 56% because of coronavirus.

Now that coronavirus is subsiding, civil unrest threatens retails. In fact, a mob looted a Kohl’s store in Bloomington, Minnesota on 2 June 2020, The Pantagraph reports. Police drove off the mob with gas.

Kohl’s Revenue’s Collapse

Kohl’s quarterly revenues fell by $4.404 billion between 31 January and 30 April 2020. In detail, Kohl’s reported quarterly revenues of $6.832 billion on 31 January 2020 and quarterly revenues of $2.428 billion on 30 April 2020.

Disturbingly, Kohl’s revenue growth fell by 40.59% in the quarter ending on 30 April 2020. Kohl’s revenues grew by 0.13% in the previous quarter, Stockrow estimates.

Predictably, Kohl’s is making less money. For instance, Kohl’s quarterly gross profit fell from $2.432 billion on 31 January 2020 to $641 million on 30 April 2020. In comparison, Kohl’s reported a quarterly gross profit of $1.672 billion on 30 April 2019.

Dramatically, Kohl’s reported an operating loss of -$718 million on 30 April 2020. Kohl’s reported an operating income of $401 million on 31 January 2020. Plus, Kohl’s common net income fell from $265 million to -$541 million in the same period.

Is Kohl’s in Trouble?

I think Kohl’s is in trouble because the company is borrowing money to survive. For instance, Kohl’s reported a financing cash flow of $1.425 billion on 30 April 2020.

The financing cash flow is the amount of cash Kohl’s borrowed in the quarter. Notably, Kohl’s reported a $2.039 billion ending cash flow on 30 April 2020. However, Kohl’s reported an operated an operating cash flow of $53 million on the same day.

I think those numbers show Kohl’s is borrowing money to survive. Therefore, Kohl’s could collapse into bankruptcy if civil unrest or coronavirus closes its stores for months.

Kohl’s had $2.039 billion in cash and short-term investments on 30 April 2020. Unfortunately, I think Kohl’s borrowed most of that cash.

However, Kohl’s still had some value in the form of $15.869 billion in total assets.

Is Dillard’s in Trouble?

Dillard’s was having some problems before the pandemic. In particular, Dillard’s revenues fell from $2.056 billion on 31 January 2019 to $1.963 billion on 31 January 2020.

Moreover, Dillard’s revenue growth rate fell by 4.55% in the quarter ending on 31 January 2020. Additionally, Stockrow reports Kohl’s suffered three straight quarters of revenue growth last year. In detail, Dillard’s revenue growth fell by -2.79% in the quarter ending on 31 July 2019, -2.15% in the quarter ending on 31 October 2019, and 4.55% on 31 January 2020.

Plus, Dillard’s quarterly gross profit fell from $640.59 million on 31 January 2019 to $613.36 billion a year later. However, Dillard’s quarterly operating income rose from $16.66 million on 31 October 2019 to $87.19 million on 31 January 2020.

 Can Dillard’s Survive?

Strangely, Dillard’s was doing better in some categories before coronavirus. For instance, it reported a quarterly operating cash flow of $342.09 million 31 January 2020. That number was up from $41.56 million on October 2019 and $297.33 million on 31 January 2019.

Additionally, Dillard’s reported a financing cash flow of -$131.99 million and an ending cash flow of $189.54 million on 31 January. That indicate Dillard’s paid off $131.99 million in debts, which means it is doing better than Kohl’s.

Kohl’s is already borrowing money to survive, while Dillard’s is not. However, Dillard’s cash could give it a temporary reprieve.

To clarify, I believe neither Dillard’s or Kohl’s has the resources to survive without serious help. In particular, I do not think Dillard’s could survive another one or two months of coronavirus shut down without borrowing money. Additionally, Kohl’s could have borrowed money it cannot pay back.

Both Kohl’s and Dillard’s are Doomed

Therefore, both Kohl’s and Dillard’s will need to close stores and trim operations. I think Dillard’s will have to shrink faster because middle-class customers are afraid to return to its mall-based stores.

Moreover, coronavirus is reducing Dillard’s potential business in two ways. First, middle-class families can now order everything in Dillard’s inventory on Amazon (NASDAQ: AMZN) for low prices and have it delivered to their homes.

Second, middle-class professionals working from home will not need suits, dresses, or business casual clothes. Instead, those people can order their t-shirts, sweats, and yoga pants from Amazon.

In contrast, working-class customers are more apt to return to Kohl’s discount stores. However, I think those customers will have less cash or no cash because of the economic crisis. The New York Times estimates 40.8 million Americans had applied for unemployment by the last week of May.

What Future do Kohl’s and Dillard’s have?

I think Mr. Market overpriced Dillard’s at $33.54 and Kohl’s at $23.84 on 4 June 2020.

In contrast, Mr. Market paid $8.21 for Macy’s (NYSE: M) on the same day. Macy’s operated 850 stores under several names in 4th Quarter 2019.

I predict Dillard’s, and Kohl’s stock values will collapse to Macy’s levels. Additionally, I think Dillard’s or Kohl’s could file for bankruptcy.

Two major department store chains; Neiman Marcus and JC Penney (NYSE: JCP). filed for bankruptcy in May, NBC News reports. Moreover, one major bankrupt retailer, Pier 1 Imports plans to close its 900 stores. Pier 1 competes with Dillard’s and Kohl’s in the home furnishings sector.

Could Amazon Buy Kohl’s or Dillard’s?

Interestingly, Jeff Bezos thinks department stores could have some value. There is speculation Amazon could buy all or part of JC Penney.

The 347 stores and 11 fulfillment centers JC Penney owns could interest Bezos, Bisnow speculates. Penney’s owns prime real estate in many urban areas. Additionally, Amazon could convert Penney’s stores into small fulfillment centers or Whole Foods locations. Amazon could also open its own department or clothing stores in old JC Penney locations.

Kohl’s and Dillard’s could be Amazon’s next acquisition targets. Importantly, Kohl’s accepts Amazon returns in some of its stores.

Kohl’s and Dillard’s have no Value

Amazon has the money to buy Kohl’s and Dillard’s. The everything store had $49.292 billion in cash and short-term investments on 31 March 2020. Meanwhile, Yahoo estimates Dillard’s had a market cap of $777.829 million and Kohl’s had a market cap of $3.701 billion on 4 June 2020.

Thus, the actual value at Kohl’s and Dillard’s is real estate other companies could covet. Under those circumstances, I advise voters to stay away from Kohl’s, Dillard’s, and department stores. I think department stores have no value, and will keep dying in today’s economic climate.

In the final analysis, departments are no longer a safe investment for ordinary people.

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