Retail sector is included in the services super-sector. Sub-sectors such as retail (Apparel), retail (Catalog & Mail Order), retail (Department & Discount), retail (Drugs), retail (Grocery), retail (Home Improvement), retail (Specialty), and retail (Technology) are included under retail sector. I will try to pick five companies from these sub-sectors.
AutoNation, Inc. (NYSE:AN)
AutoNation's vehicle retailing unit segment operates in saturated markets, in our view. Although the company is the largest U.S. auto retailer, it controls only about 2% of the $1 trillion U.S. new and used car market. About 75% of total U.S. vehicle sales are to replace existing autos. AN's new auto retailing operations (nearly 54% of 2010 revenues) consist of about 245 dealerships.
On February 16, 2011, AutoNation hit a new 52-week high as it traded at $34.31 compared with its previous 52-Week high of $34.15. I am bearish on the company for several reasons. The long-term debt for AN is $1,340.6 million, while the net current assets are $229.7 million. EPS for AN were negative within the last 5 years. Even though margins are poor, it is currently trading at premium compared to peers.
AutoChina International Limited (NASDAQ:AUTC)
AutoChina owns and operates commercial vehicle sales, servicing, leasing and support network. Through its 178 store network, each of which is company-owned and operated, it offers a one-stop shopping for commercial vehicles and related services. In November 2010, it established its own financial leasing company.
Since its inception in 2007, AutoChina has failed to report even a single quarter of positive operating cash flow. The earn-out provision, introduced in 2009, was supposed to remain in place until 2013, diluting shareholders' stock by 5-20% each year. Following a spate of bad publicity as investors expressed concerns about dilutions, the company agreed to terminate the provision from 2012. For the fiscal years 2010 and 2011, the earn-out will only occur if EBITDA growth tops 70%, as opposed to 30%. I am bearish as accusations leveled at the company included the use of inappropriate accounting methods, artificially inflating the balance sheet, and a reliance on related party transactions.
J.C. Penney Company, Inc. (NYSE:JCP)
JCP is the leading mall-based family department store operator, with over 1,100 JCPenney stores in 49 states and Puerto Rico. The company recently reported its sales results for the four-week period ended January 29, 2011. The company's comparable-store sales for January 2010 dipped 1.2%. Lower inventory clearance coupled with bad weather hampered the January performance. Total sales dropped 3.9% during the month to $903 million.
The company's annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were $3.83, $4.89, $4.91, $2.54 and $1.07 – an indication of declining trend. JCP's Debt/Equity of 62.72% is unacceptable. JCP's relative strength trend has been declining over the last 4 months. So it is unattractive.
China Nepstar Chain Drugstore Ltd. (NYSE:NPD)
China Nepstar Chain Drugstore Ltd. (China Nepstar) is a retail drugstore chain in China. As of December 31, 2009, its store network was comprised of 2,479 directly operated drugstores.
EPS for NPD were negative within the last 5 years. It is unattractive on metrics such as P/E, and P/B. Money flow into the stock and on balance volume have been negative since January 25, 2011. Relative strength index has been trending down, so it is unattractive.
PetMed Express, Inc. (NASDAQ:PETS)
The company markets prescription and non-prescription pet medications, and other health products for dogs, cats, and horses direct to the consumer.
EPS for PETS were negative within the last 5 years. Unattractive on metrics such as P/E, and P/B. PETS earnings growth in the 2 most recent quarters (-21.4% for Q6 to Q2 and -16.7% for Q5 to Q1) have slowed substantially to a point less than its long-term growth rate of 27.7%. PETS's relative strength trend has been declining over the last 4 months.