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Is The Retail Industry As We Know It Dead?

|Includes: TA, West Marine, Inc. (WMAR)

Despite the massive growth the major stock markets have seen during the last couple of years, the timeframe would also be remembered for the rout it caused in the stock prices of several retail players. It can very well be argued that the decisive emergence of Internet-based trade in these years effectively made way to graveyards for many retail players. While apparel and electronics retailers were most brutally mauled, specialty retailers such as West Marine Inc. (NASDAQ: WMAR) and TravelCenters of America LLC (NYSE: TA) were slightly better off.

West Marine Inc. is a specialty retailer of boating supplies and accessories. The unusually harsh winter season had already sent tremors among investors and the stock lost 13.3 percent over the last quarter. The company saw a decline of 2 percent in revenues last year, but profits nearly halved to $7.8 million. The declining trend has continued in 2014 as well, with first quarter revenues coming in at 1 percent decline to $113.3 million. Net loss during the period grew 13.2 percent to $11 million. Without doubt, the quarterly performance was disappointing but the company has reaffirmed its sales and earnings guidance for the full year.

To be sure, the company has some positives to it including a debt-free balance sheet and the stock, trading at a discount to its book value. Being a specialty retailer, West Marine may be able to survive and turnaround during the rest of the year. However, its business model has certainly matured and investors hoping to make a killing in the stock would be greatly disappointed.

Ohio based TravelCenters of America operates and franchises travel centers along the U.S. interstate highway system to cater to independent truck drivers and trucking fleets. Operating out of 247 locations, this is a mature business and margins are often thin, but high level of turnover often makes up for this shortcoming. Unfortunately, the business has become stagnant lately for TravelCenters of America while its costs are going up.

For the results available for the nine months of 2013, the company's net profit declined sharply (43.3 percent) to $19.65 million although revenues shrank only marginally. Besides the industry headwinds, the company is also struggling with certain internal checks and balances, which has caused an inexorable delay in the filing of the annual report. In terms of valuations, the stock is attractive. Barely 8 percent above its 52 week-high, the stock is priced at a forward earnings ratio of just 7.6 while offering a huge 44 percent discount to book value. A debt equity ratio of 0.52 is certainly not very high and the overall financial health of the company can see a massive recovery in case of revenue growth.

Although there are certain positives associated with specialty retailers, both above mentioned stocks suffer from serious issues which make putting money in these stocks more to do with gambling rather than investing. In both stocks, investors get exposed to a variety of industry headwinds as well as regulatory issues.