Retail seems to have gotten tired lately. The Christmas season is over. The after Christmas season is partly done. Retailers will have little to push them up beyond Q4 earnings. It seems appropriate to take a look at the fundamentals of stocks in this sector to see if any opportunities present themselves. Since Wal-Mart (WMT) is so well covered, I didn’t bother to look at it. Instead I selected five prominent retailers: Sears (SHLD), Macy's (M), JC Penney (JCP), Target (TGT), and Kohl’s (KS). I have listed a lot of their fundamentals in the table below.
| Stock | SHLD | M | JCP | TGT | KSS |
| PE | -- | -- | 23.34 | 16.88 | 18.43 |
| FY2010 PE | 56.39 | 11.48 | 17.51 | 13.59 | 15.15 |
| Current Price | $83.45 | $16.76 | $26.61 | $48.37 | $53.93 |
| 1 Yr. Target Price | $52.20 | $21.54 | $37.31 | $57.82 | $65.41 |
| Avg. Analyst Rating | 3.7 | 2.2 | 2.3 | 2.0 | 1.8 |
| Held by Institutions % | 95.0% | 92.58% | 90.26% | 87.42% | 90.23 |
| Short Interest % of Float | 13.1% | 8.65% | 11.20% | 1.54% | 3.96 |
| Price/Book | 1.1 | 1.61 | 1.38 | 2.45 | 2.29 |
| Price/Cash Flow | 10.78 | -- | 8.47 | 8.89 | 11.48 |
| Price/Sales | 0.22 | 0.31 | 0.36 | 0.57 | 1.01 |
| Gross Profit Margin | 27.43% | 39.73% | 38.19% | 29.50% | 37.35% |
| Net Profit Margin | -0.01% | -20.74% | 1.46% | 3.34% | 5.35% |
| Annual Dividend | $0.00 | $0.20 | $0.80 | $0.68 | $0.00 |
| Total Debt/Capital (MRQ) | 28.97% | 65.96% | 42.51% | 53.94% | 21.88% |
| Quick Ratio (MRQ) | 0.25 | 0.19 | 0.79 | 0.82 | 0.59 |
| Interest Coverage (MRQ) | -- | 0.4 | 1.67 | 4.58 | 10.94 |
| EPS Growth (MRQ) | 6.61% | 20.55% | -79.44% | 18.30% | 19.48% |
| Revenue Growth (MRQ) | -4.41% | -3.93% | -3.22% | 1.07% | 6.50% |
| Return on Equity | -0.05% | -68.94% | 5.29% | 15.14% | 12.98% |
| Revenue Per Employee | $151,464 | $141,162 | $120,850 | $184,433 | $597,521 |
| PEG Ratio | 7.72 | 1.59 | 2.81 | 1.10 | 1.31 |
Kohl’s seems to be the class of the lot (The Good). It has far superior Revenue per Employee at $597,521/employee compared to about $150,000 on average for the four others. It has both a reasonable PE (18.43) and FY2010 PE (15.15). It has low Debt/Capital (21.88%). It has the ability to pay interest on that debt out of operating profits. It has good margins for its industry and good growth. Its current price, $53.93, is below its average analysts’1 yr target price, $65.41, so it is not grossly over priced. It has low short interest (3.96%). Plus it has an average analyst rating of 1.8 -- a BUY+. If you own this stock, you can keep it with the expectation of reasonable performance in the future. However, it is probably not likely to explode upward immediately. The 3-month chart of Kohl’s is below: click to enlarge A historically troubled retailer is Macy's (The Bad). Macy’s has the highest Debt/Capital at 65.96%. Plus its debt grew this year -- a bad sign. Its most recent quarter Quick Ratio is 0.19. Its Interest Coverage (MRQ) is 0.40. Macy's could have trouble servicing its debt, especially if a double dip occurs. For now its FY2010 PE is a very good 11.48. It has a decent Price/Book ratio. Its current price, $16.76, is below the average analysts’ 1 yr target price of $21.54. Macy's 3-month chart shows it is over sold. It has been trending downward, but it had EPS growth of 20.55% in its most recent quarter. Things may be on the upswing for Macy's if the economy continues to recover. Still with Macy's trending generally downward at this point, I would not chose to invest. If it has a great Q4, I could change my mind, but I would wait at least until then (perhaps longer). Its 3-month chart is below: The outrageous SHLD price is most likely a reflection of a short squeeze during the recent retail rally in a low volume market. When the traders come back in Jan., SHLD seems likely to fall quickly. It has a good Price/Book. However, it has little ability to pay its debts from its operations or its current assets. In short it could be in serious trouble if the economy suffers a double dip recession. This would likely mean a commercial real estate implosion, which would worsen SHLD‘s situation. Even without a double dip, SHLD is a troubled retailer. Its EPS and revenues are uncertain for the next 2 to 3 years. If GS projections for an unemployment peak in 2011 are accurate, Sears could degenerate further. It could have to raise cash through a stock issuance or a debt issuance. Either of these two options would decrease shareholder value. It deserves its average analysts’ rating of 3.7 (a SELL). It does not deserve its current price. The retail sector rally seems tired now. It cannot go on at the rate it has forever. The 1 year XRT chart below gives a technical picture of this. JCP and TGT fall in between “The Good”, Kohl’s, and the two more troubled retailers -- Macy's and Sears. Disclosure: Short SHLD
Kohl’s has been trending downward lately, so I would be hesitant to start a new investment in it at this time. If you desired to start an investment in KSS, you might set a trigger price slightly above the current price. If KSS continues downward, you can keep slowly lowering your trigger price. Then when it eventually heads back upward, your trigger will actuate a buy of KSS at a price near a near term bottom. Once you own the stock, you can set a hard stop and a trailing stop. With this approach you should end up making money.
The worst of the bunch is Sears -- SHLD (The Ugly). It has lost money in the TTM period (no PE). Plus its FY2010 PE is 56.39. I know the market is generally treating FY2010 PE’s as current PE’s for valuing stocks as we are just coming out of a recession. Still the Sears FY2010 PE is outrageously high for a retailer even if you make the use of FY2010 data. Using the FY2010 average estimate is a concession to the times. Ignoring outrageously high data that is still over a year off is a sure sign of irrational exuberance (a sign of an imminent crash). The current price is 60% above the 1 year analyst’s target price. SHLD is just moving down off its top Bollinger band. It is still 13% above its 50-day SMA. It seems likely to move down to its 50-day SMA (and then below it) in the near term. It has a short interest of 13.1%. 
You can easily see that the general retail stocks have gotten tired. They went up in anticipation of Christmas. Now Christmas is over. A few may continue to rise on great results. Most will now retreat as there can be few great expectations for quite some time into the future. The Christmas season is by far the biggest season. If you compare the SHLD chart to the XRT chart, you can see that SHLD did not get tired in early Nov. It has instead continued to rise as the market has moved up only slightly on light volume. This light volume is probably what has made the short squeeze on SHLD push the stock up more than it should have. The 1 year SHLD chart is below:
The 3-month SHLD chart shows the likely first point of support on the way down at about $77.60. A second stronger support point is at $73.50 to $73.95. The 3-month SHLD chart is below: 
SHLD is a short candidate. It has too much going against it for the moment. I will watch the Q4 results closely. I will also watch the retail sector carefully. If the sector goes down in the near term, SHLD should outperform it to the downside. This is also true of the overall S&P500. However, if either or both of the sector or the market goes up, you would probably want to cover your short.
