Make no mistake: Sears (NASDAQ:SHLD) and J.C. Penney (NYSE:JCP) act more like museums than retailers. They've become simply corridors to get to the rest of the mall. The tip off: The two can't unload their inventory. Goods move at a trickling pace and it's killing the bottom line.
Check the length of time it takes these brick-and-mortar retailers to move their goods: Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), Sears and J.C. Penney. The chart shows how long it takes to turnover inventory. The longer the days of inventory, the longer dollars are tied up.
(Days of Inventory = Inventory/Cost of goods x 365 days. Data courtesy of Morningstar.com in TTM time frame.)
Any slower inventory management and Penney and Sears might as well advertise in Frommer's Guide to museums.
Penney and Sears have rallied on the promise of change. The real deal must include a credible plan to tackle inventory. For now, investors should take their cue from the "Days of Inventory" and avoid these two stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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