Back in May, I told you about two pathetic retail dinosaurs - Sears Holdings Corp. (Nasdaq: SHLD) and Kohl's Corp. (NYSE: KSS) - and how to play both stocks for big gains as they lurch toward their deathbeds.
Today, I want to give you an update on how those stocks are faring - and how your positions are looking if you took my advice.
And I hope you did... because we're already up double digits.
Here's what you need to know...
The Retail Frankenstein That Just Won't Die
On May 3, I gave you all the sordid details of Eddie Lampert's failed financial engineering experiment that frankensteined Kmart and Sears together into a retail abomination. Here are the facts I reported at the time:
- Sears Holdings has lost $10.4 billion since 2011. Excluding "one-time charges" and "events," the loss is $4.57 billion.
- Sales are down 44% since 2012.
- The company just registered its 21st consecutive quarter of losses.
- Same-store sales in the last quarter of 2016, which includes the holiday shopping season, were down 10.3%.
- In the summer of 2015, SHLD had $1.8 billion in cash. By the end of 2016, it was down to $258 million.
But Lampert is running out of time, money, and most importantly, valuable assets. After a little boost to the stock price on the heels of the sale of the Craftsman brand, the scaffolding fell away and the stock price plummeted.
I recommended that you short Sears at around $10.25 and that you plan on shorting more at $11.00, and a lot more at $13 and $14.
If you followed my advice, you're short Sears at around $10.63 after averaging in when the stock briefly rose to $11.00 on May 10.
Since then, it's been almost all downhill for SHLD. On June 6, it hit a low of $6.44, giving you 39.35% gains in just over a month.
Not bad.
But let's say you bought some put options instead. I recommended that you target out-of-the-money puts that expire in late 2017 or even 2018 to give yourself some time to weather any more of Lampert's financial engineering schemes.
I'll give you a few examples...
If you bought options expiring in December 2017, here's what you're looking at right now:
| SHLD Puts | Price as of 5/4/2017 | Price as of 6/7/2017 | Returns |
| December 2017 $9 puts | 3.40 | 4.20 | 23% |
| December 2017 $8 puts | 2.70 | 3.60 | 33% |
| December 2017 $7 puts | 2.17 | 2.85 | 31% |
| December 2017 $6 puts | 1.61 | 2.20 | 36% |
| December 2017 $5 puts | 1.15 | 1.60 | 39% |
If you went for the January 2018 puts:
| SHLD Puts | Price as of 5/4/2017 | Price as of 6/7/2017 | Returns |
| January 2017 $9 puts | 3.50 | 4.69 | 23% |
| January 2017 $8 puts | 2.77 | 3.71 | 33% |
| January 2017 $7 puts | 2.17 | 3.06 | 31% |
| January 2017 $6 puts | 1.62 | 2.32 | 43% |
| January 2017 $5 puts | 1.22 | 1.74 | 42% |
And it's only getting worse for Sears - it just announced more store closures.
If you're short SHLD, great job. If not, you still have time to ride the stock to the bottom...
The Writing's on the Wall, but This Retailer Can't Read
Two days later, on May 5, I told you the story of Kohl's - seemingly the only dinosaur retailer who hadn't got the memo about the impending extinction of brick-and-mortar retail.
Here's what I said...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
What's going on at Kohl's, besides a lot of delusion, is that sales are cratering at its physical stores.
Sure, the company beat its own knocked-down revenue projections for the fourth quarter of 2016. After guiding analysts' expectations down, such that the consensus for revenue was $6.0 billion, Kohl's trumpeted its beat in the fourth quarter. What was its revenue? A whopping $6.1 billion. Barely.
The company wanted to impress anyone listening by saying it revenue was better than expected, thanks in part to progress in online sales.
It must have been good, because the so-called "beat" happened in spite of same-store sales declining 2.2% in Q4 (which, of course, included the all-important holiday shopping season).
But forget its beat. Revenue was actually down 2.8% versus a year ago.
And profits? Ice cold would be one way to describe the 15% tumble in quarterly profits; again, might I remind you, that's during the holiday shopping season.
For the full year of 2016, Kohl's net fell almost 17.5%.
So what's Kohl's doing? Unlike its retail brethren, most of which are shuttering stores left and right, Kohl's is opening more.
I told you this was just about the dumbest thing chairman, president, and CEO Kevin Mansell could be doing right now.
I was right. I'm still right. The markets agree.
Since I took KSS to the woodshed a little over a month ago, the stock is down 10%.
If you shorted it where I recommended at $39.95, that 10% went right into your pocket.
I also recommended buying puts on KSS. I didn't give you a specific recommendation here, but let's take a look at what some of those options have done since then.
The October 2017 would have been an excellent place to start - at the time of my recommendation, they would have given you almost six months for the trade to work in your favor, and they would have been cheaper relative to the January 2018 puts (we'll get to those in a minute). Here's how the October puts have done...
| KSS Puts | Price as of 5/8/2017 | Price as of 6/7/2017 | Returns |
| October 2017 $37.50 puts | 3.40 | 4.30 | 26% |
| October 2017 $35.00 puts | 2.22 | 3.00 | 35% |
| October 2017 $32.50 puts | 1.45 | 1.80 | 24% |
| October 2017 $30.00 puts | 0.92 | 1.24 | 54% |
| October 2017 $27.50 puts | 0.60 | 0.65 | 8.3% |
If you wanted a bit more time (and were willing to pay for it), the January 2018 puts would have been a great choice.
In fact, if you'd bet on a steep decline in the KSS stock price between May 2017 and January 2018, you'd already be up 133%. Take a look.
| KSS Puts | Price as of 5/8/2017 | Price as of 6/7/2017 | Returns |
| January 2018 $37.50 puts | 3.40 | 5.50 | 61% |
| January 2018 $35.00 puts | 2.22 | 4.10 | 84% |
| January 2018 $32.50 puts | 1.45 | 3.10 | 113% |
| January 2018 $30.00 puts | 0.90 | 1.95 | 116% |
| January 2018 $27.50 puts | 0.60 | 1.40 | 133% |
Everything I said about Kohl's is as true now as it was a month ago - Mansell continues to make head-scratching moves that indicate he thinks that he can outsmart a sector-wide extinction-level event.
That's usually not a safe bet.
There's still time to short KSS if you haven't already.
We'll keep close tabs on these two losers going forward, and hopefully you'll be able to ring the register and book some big gains in the months ahead.
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The post Update on SHLD and KSS: You Could Already Be Up 133% appeared first on Wall Street Insights & Indictments.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.