TIME Companies

Toys ‘R’ Us Wants to Make Its Stores More Fun For, Well, the Kids

The Toys R Us Inc. logo is displayed inside a store ahead of Black Friday in New York, U.S., on Thursday, Nov. 27, 2014
Peter Foley—Bloomberg/Getty Images The Toys R Us Inc. logo is displayed inside a store ahead of Black Friday in New York, U.S., on Thursday, Nov. 27, 2014

Makes sense

In effort to contend with online retailers and discount box stores, Toys ‘R’ Us is planning an overhaul aimed at making its stores more appealing for its core market: children.

Bloomberg reports the company will start with a prototype store in New York this year that will feature interactive technology and — why didn’t they think of this before? —a play area. If the kids are enjoying themselves, the thinking goes, parents will spend more time, and money, in the store.

“It has to be something where kids want to go and play,” CEO Antonio Urceley said on Tuesday, “We have to reinforce that we are a specialist.”

Toys ‘R’ Us is struggling to compete with retailers like Amazon.com and Target, which undercut the toy brand on price. The company hopes that souped up stores will make up for that.

Additionally, the company plans to hire more staff at Babies ‘R’ Us to boost customer service that it admits has been slacking.

The struggles of Toys ‘R’ Us are not new. In 2005, it became a jointly held private corporation owned by Bain Capital Inc., KKR & Co. and Vornado Realty Trust. Since then, it has failed to garner momentum for an initial public offering with the last attempt in 2013 failing due to “unfavorable market conditions.”

[Bloomberg]

MONEY

Shake Shack Shock: Burger Joint Sees Setback in Shares After First Quarter

Shake Shack saw a dip in shares the day after posting its first quarterly earnings report.

MONEY stocks

Why You Shouldn’t Reach to Grab New Stocks

150312_ISK_SkepticalInvestor
Taylor Callery

As Shake Shack's recent slide demonstrates, while the IPO boom gives you lots of hot companies to take a flier on, you’ll most likely fall flat.

Do you regret missing out on the stunning debuts of Alibaba ALIBABA GROUP HOLDING LTD BABA 0.49% and Shake Shack SHAKE SHACK INC SHAK 3.38% ? Are you now waiting to hail Uber or snap up Snapchat when they go public, as expected?

Before you jump in, remember that when you pick a stock, you’re already taking a leap of faith—but with a newly public company, you’re taking two leaps. First, do you really know enough about the business? Second, has the market had sufficient time to draw its own conclusions so that you are buying at a fairly rational price?

“Anything that’s been trading for a while has been vetted by a whole host of investors,” says John Barr, a manager with the Needham Funds. Not so at or just after an initial public offering, and that’s why you have to tread carefully.

You’ll pay for the honeymoon

IPOs attract big headlines on day one, but surprises inevitably crop up. From 1970 to 2012, the typical IPO gained just 0.7% in its second six months, after the honeymoon effect had a chance to wear off. That’s five percentage points less than other similar-size stocks, finds Jay Ritter, a finance professor at the University of Florida. The year after that, the average IPO lagged by eight points.

Chinese e-tailer Alibaba, which soared 38% on its first day in September, is getting its dose of reality a bit ahead of schedule. Shares are down 28% lately, after the company surprisingly missed revenue-growth forecasts.

Themes get overdone

It’s easy to be lured by a story. Shake Shack doubled on its first day, thanks to the buzz surrounding high-quality fast-food chains like Chipotle CHIPOTLE MEXICAN GRILL INC. CMG 0.59% . But riding a food trend is hard. A decade ago, overexpansion killed investors’ ravenous appetite for Krispy Kreme doughnuts KRISPY KREME KKD 0.95% , and the company’s shares remain 56% off their peak.

Shake Shack has also entered a crowded battle for foodie dollars: the Habit Restaurants HABIT RESTAURANTS HABT 2.03% , Potbelly POTBELLY CORP COM USD0.01 PBPB 2.75% , and Noodles & Co. NOODLES & CO COM USD0.01 CL'A' NDLS 0% all went public recently, and all more than doubled in the first day. Odds are the market is overoptimistic about most of them. Since 2013, 15 stocks have doubled on day one; only two—both biotech firms—are trading above their first day’s close.

The fact is, unless you gain access to an IPO at a great price at issuance, you can’t view those stocks as buy-and-hold investments. And you should avoid any richly priced new stock altogether.

Shake Shack trades at 650 times its earnings. To justify that valuation, Ritter figures the burger chain must grow from 63 stores to nearly 700, each half as profitable as a Chipotle restaurant. That’s a big leap indeed, given that Shake Shack locations aren’t even a third as profitable at the moment.

This story was originally published in the April issue of MONEY magazine. Subscribe here.

TIME Companies

The Real Meaning of Etsy’s Initial Public Offering

The logo of Etsy Inc., is displayed for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Jan. 20, 2015. Etsy Inc., where people sell handmade crafts and vintage goods, may be the biggest technology IPO to come out of New York since 1999. Etsy is working on an IPO that could take place as soon as this quarter, people familiar with the matter said. Photographer:  Daniel Acker/Bloomberg
Daniel Acker—Bloomberg via Getty Images The Etsy logo is displayed on a smartphone in front of sewing machine in Tiskilwa, Ill., on Jan. 20, 2015

Twee jokes aside, the handmade marketplace's IPO is a test for Wall Street

Etsy’s decision to go public seems to have unleashed a wave of jokes about Portlandia, yarn crafts, and Brooklyn hipsters on Wall Street. Go ahead and get it out of your system, and when you’re done consider for a moment what this stock offering, which could come as early as April, will mean for the tech IPO market at large.

Founded in 2005, Etsy has aged better than many of the startups that have emerged during the past decade, like Yelp or Groupon. With revenue still growing close to 60% a year, the company seems to have a fair amount of gas in its growth engine. That’s because Etsy was designed to do something that didn’t really exist at scale before: create a marketplace devoted to connecting those who love to make handcrafted goods with consumers who love buying them.

Etsy’s origins lie in real-world craft fairs, tightly connecting the creators who drove the maker movement in ways that a broader marketplace like eBay couldn’t. The marketplace charges sellers a 3.5% fee on completed transactions plus a 20 cents per item to list fees on the site for four months. Sellers can also pay extra for shipping labels, direct checkout and promoted listings, and these value-added services now make up 47% of Etsy’s total revenue.

But while Etsy is one of the more successful communities to have emerged on the Internet in the past decade, it’s not exactly counted among the so-called “unicorns”, the rare and wildly popular startups, like Uber or Airbnb, that can raise megaround after megaround of private financing, skirting the need for an IPO and all the regulation and scrutiny that come with a publicly traded stock.

When Etsy filed its S-1 Wednesday, it became clearer why. Airbnb is reportedly near a $20 billion valuation, while Uber is valued at twice that amount. Etsy didn’t indicate what the company may be worth after its IPO, but it’s hoping to raise $100 million, and given that many Internet IPOs float only 5% or 10% of their outstanding shares, that could lead to an IPO that values the company between $1 billion and $2 billion.

The Etsy offering could be an important testing of the IPO waters for other companies that have growing businesses and devoted followings, but that are not able to secure large rounds of private financings. The coming months may well see more of these companies seeking IPOs if US interest rates begin to edge higher. That could bring an end to the six-year stock rally, prompting investors in both public and private markets to be choosier about where they put their money.

For Etsy, the challenge is in extending the growth in its core market to a broader range of consumers. Nearly 80% of Etsy’s sales come from repeat buyers, many of whom prefer to buy from individual producers. Etsy has 1.4 million active sellers, 95% of them running Etsy shops from their homes.

To keep growing, Etsy has had to implement changes that have alienated some longtime sellers, like expanding from handmade goods to those manufactured in small batches. And it’s decided it can’t rely mostly on the word-of-mouth referrals that drove its early growth. As a result, Etsy’s spending on search engines and other kinds of marketing rose 122% in 2014 to $40 million.

That aggressive spending caused Etsy to swing from an operating profit of $733,000 in 2013 to a $6.3 million operating loss last year. Despite the loss, Etsy still generated $12 million in operating cash flows. Meanwhile, the company’s cash on hand increased to $70 million at the end of 2014 from $37 million a year earlier. Both figures are indications of healthy business operations.

The prospectus, however, also warned of two “material weaknesses” in the way Etsy controls its financial reporting—one related to how it accounts for certain unnamed expenses and another related to “period-end accruals.” It’s not clear that either will lead to a restatement of earnings, but normally companies wait until these kinds of financial kinks are ironed out before going public. The presence of these disclosures may suggest Etsy is under pressure to complete its IPO quickly.

Another question is how Wall Street will receive Etsy’s corporate idealism. Unlike Groupon, Etsy doesn’t play up its quirkiness—a streak of humor that ultimately fell flat with investors—but its prospectus makes clear it marches to the beat of its own drum. The company’s name is taken from a phrase repeated through Fellini’s 8 ½, and its independent spirit remains strong today.

Which is why Etsy’s S-1 contained sentences like, “We eat on compostable plates, and employees sign up to deliver our compost by bike to a local farm in Red Hook, Brooklyn, where it is turned back into the soil that produces the food we enjoy together.” Or the risk factor that the company’s “focus on long-term sustainability” may hamper its short-term performance.

Google and Facebook both issued such warnings, but Etsy is raising the ante by citing sustainability and environmental concerns, rather than innovation, as the long-term objective that weigh on short-term profits. These goals are laudable and worthy in the real world, but inside the rarefied, profit-obsessed realm of Wall Street they will either be glossed over—or zeroed in on when it comes time to cut costs.

For now, though, Etsy is likely to receive a warm welcome on Wall Street. Internet IPOs with brand names familiar to consumers are a rare item these days, unlike the legion of obscure if promising drug startups. Etsy’s first test will be in showing that the spending on marketing is translating into new and loyal users. Handcrafted goods are as old as commerce itself, and Etsy has given them a modern twist. Whether that can scale up to a mainstream market remains to be seen.

TIME Tech

Etsy Files for Handcrafted IPO

The logo of Etsy Inc., is displayed for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, Jan. 20, 2015. Etsy Inc., where people sell handmade crafts and vintage goods, may be the biggest technology IPO to come out of New York since 1999. Etsy is working on an IPO that could take place as soon as this quarter, people familiar with the matter said. Photographer:  Daniel Acker/Bloomberg
Daniel Acker—Bloomberg via Getty Images The Etsy logo is displayed on a smartphone in front of sewing machine in Tiskilwa, Ill., on Jan. 20, 2015

The handcrafted marketplace cited losing its authenticity as a risk factor in its regulatory filing Wednesday.

Etsy, the online marketplace for handcrafted and vintage goods, has filed for an initial public offering that is banking on the continued appetite for new Internet stocks.

Reports speculated that the company could be valued in the public markets at $2 billion. It said in a regulatory filing Wednesday that it hopes to raise $100 million in the offering, although that amount is likely a placeholder.

Etsy, founded in 2005, has ridden the “maker movement” to success, becoming synonymous with handmade crafts online. It has cultivated a devoted community of 1.4 million sellers and 19.6 million buyers, for whom the site is a sort of eBay for everything from reclaimed wood furniture to hand-made terrariums.

Last year, Etsy took in $195 million in revenue, with just over half coming from transaction fees. The rest came from services the sites offers to sellers like promoted listings, payment processing and shipping labels.

The company posted a loss of $15 million in 2014, up from $800,000 in the prior year. In a potentially worrisome sign to potential investors, it said that operating expenses are expected to “increase substantially.”

Etsy retained Goldman, Sachs & Co. and Morgan Stanley as joint book-running managers with Allen & Company as co-manager. It plans to trade on Nasdaq under the symbol “ETSY.”

A few years ago, Etsy lifted some of its stricter sales requirements, including a ban on sellers using certain manufacturing techniques and hiring staff that had been put into place to maintain the site’s homespun image. This gave the sellers that had made their Etsy shops into a full-time job the ability to expand, but critics warned that it might cause the site to lose what makes it special.

Those concerns resurfaced around reports of the company’s public offering. In its filing Wednesday, Etsy noted the importance of “authenticity of our marketplace and connections within our community,” as one of the cornerstones of its business.

“If we are unable to maintain them, our ability to retain existing members and attract new members could suffer,” the company’s regulatory filing said.

CEO Chad Dickerson has long hinted that Etsy might try to avoid the traditional IPO route, followed by the likes of giants like Facebook, Twitter and videocamera maker GoPro. The company is a Certified B Corp, after all, so it technically has a “double bottom line,” which means it must make investors happy while also following more unconventional corporate guidelines that emphasize doing good.

In 2012, Dickerson pointed to SurveyMonkey, the online survey company, as an example of a viable alternative to going public. Rather than sell or IPO, SurveyMonkey underwent an $800 million recapitalization in which it took on debt financing. This allowed the company to pay back its outside investors while remaining private and independent. However, Etsy, which raised almost $100 million in venture backing over the years, has chosen to list itself on Nasdaq.

If successful, Etsy’s IPO will be a win for New York’s tech scene, which has seen its early leaders, blogging service Tumblr and location check-in app Foursquare, sell or struggle to find their way. It would also be a win for its venture investors, Glynn Capital Management, Index Ventures, Union Square Ventures and Accel Partners. Of course, that’s a big if. But how could anyone resist a cat in a handcrafted necktie?

This article originally appeared on Fortune.com

TIME stock market

Here’s the Biggest Change in Technology in Recent Memory

Yelp Yelp. If you’re on vacation or new in town (or even not-so-new in town) and you want to learn about what’s around you — shops, restaurants, dry cleaners, gas stations, bars, you name it — Yelp has you covered, complete with user reviews so you can separate the good from the bad.

It's not some new, slick gadget or big idea

With the bulk of the earnings season behind us, the stock market appears to be in a much better mood than it was a month ago. The S&P 500 is up 3.8% over the past month, while the tech-heavy Nasdaq 100 is up an even healthier 5.9%. Tech, it seems, is a popular sector refuge in the sea of uncertainty facing 2015.

But a closer look at the tech earnings from the past month shows a more complex story as not all tech names are being favored equally. In fact, some of the companies that dished out disappointing forecasts were hammered hard. If there is one key trend that emerged from the recent parade of fourth-quarter earnings, it’s that 2015 is turning into a stockpicker’s market for tech shares.

This is in contrast to the past couple of years, when waves of enthusiasm or caution swept across the tech sector at large. Last year, for example, an early rally for tech led to concerns that another bubble would emerge–concerns that were quickly dispelled by a brutal selloff come April. By June, stocks were recovering, and the Nasdaq 100 ended last year up 18.5% and the S&P 500 up 11.8%.

One trend from 2014 that’s continuing into this year is the outperformance of larger-cap tech stocks. Smaller tech shares tend to do well in the several months following their IPOs, then have a harder time pleasing investors. A good example is GoPro, which went public at $24 a share in June, surged as high as $98 in October and and fell back to $43 last week in the wake of its earnings report.

GoPro’s post-earnings performance illustrates the selective mood of investors. The company blew past analyst expectations with revenue growth of 75% and higher profit margins. But the stock plummeted 15% the following day as analysts raced to lower price targets. Why? GoPro’s outlook was seen as too weak to support its lofty valuation and its chief operating officer was leaving.

That pattern played out in other smaller tech companies. Yelp slid 20% after its own earnings report that beat forecasts but that showed worrisome signs of slower growth and slimmer profits this year. Pandora fell 17% to a 19-month low after disappointing revenue from the holiday quarter. Zynga finished last week down 18% after warning this quarter will be much slower than expected.

What all of these companies also have in common are uncomfortably high valuations. Even after the post-earning selloff, GoPro is trading at 37 times its estimated 2015 earnings. Pandora is trading at 75 times its estimated earnings, while Yelp is trading at an ethereal 371 times. The S&P 500 has an average PE of just below 20.

So which companies did the best this earnings season? As a rule, it was big cap names serving the consumer market: Apple, Twitter, Amazon and Netflix. What these four companies have in common beyond strong earnings last quarter is that all were seen as struggling by investors during some or all of 2014.

Compare them to big-cap tech names that posted decent financials in the fourth quarter but that weren’t seen as struggling before, but instead were seen as thriving tech giants. Google, for example, is up 6% over the past month, while Facebook is up 1%. Both are enjoying steady growth that was so consistent with their past performance it has a ho-hum quality to it.

By contrast, Apple, which had been portrayed by critics as a gadget giant past its prime, has seen its stock rally 21% in the past month to a $740 million market cap, the first US company to be worth more than $700 billion. Amazon, which investors feared would suffer prolonged losses because of its expansion plans, is up 29%. So is Twitter, another object of investor worry in 2014. Netflix, a perennial target of bears, is up 40%.

So what have we learned about the technology sector so far this year? On the whole, investors are favoring tech stocks in a world of uncertainty – where negative interest rates have become bizarrely commonplace, and where the next market crisis could come from a crisis involving the Euro’s value, or China’s economy, or oil’s volatility, or Russia’s military aggression.

But at the same time, investors have grown more selective about the tech names they invest in. They might snap up hot tech IPOs, but they’ll drop them quickly if those companies can’t deliver over time. They prefer big tech, especially companies that cater to consumers. And if those tech giants can engineer a turnaround, they’re golden.

MONEY Food & Drink

Why Shake Shack’s IPO Is Too Rich for My Blood

Shake Shack founder Danny Meyer (3rd R) and Shake Shack CEO Randy Garutti (2nd R) ring the opening bell at the New York Stock Exchange to celebrate their company's IPO January 30, 2015. Shares of gourmet hamburger chain Shake Shack Inc soared 150 percent in their first few minutes of trading on Friday, valuing the company that grew out of a hotdog cart in New York's Madison Square Park at nearly $2 billion.
Brendan McDermid—Reuters Shake Shack founder Danny Meyer CEO Randy Garutti ring the opening bell at the New York Stock Exchange.

I used to think Shake Shack might be undervalued. Not anymore.

Last week, I wrote a positive article on burger chain Shake Shack’s SHAKE SHACK INC SHAK 3.38% IPO on the basis that, “in [the indicative $14 to $16] price range, the shares could significantly undervalue Shake Shack’s growth potential.” The shares began trading today, and I’m much less excited about the offering. In fact, I think investors ought to avoid the stock entirely. What’s changed?

Is no price too high?

It’s not unreasonable to think a stock that is attractive at $15 may well be repulsive at more than three times that price — which is where Shake Shack shares are now trading. (The stock was at $48.62 at 12:30 p.m. EST.) Indeed, the underwriters raised the price range to $17 to $19 — and the number of shares being sold — before finally pricing the shares at $21.

Apparently, that did nothing to deter investors once shares began trading in the second market this morning – they opened at $47, for a 124% pop! Despite solid or even outstanding fundamentals, a business will not support any valuation. Price matters.

Last week, I compared Shake Shack to Chipotle Mexican Grill CHIPOTLE MEXICAN GRILL INC. CMG 0.59% . Let’s see how the share valuations of the two companies on their first day of trading now compare:

Number of restaurants operated by the company at the time of the public offering Price / TTM Sales
(based on closing price on first day of trading)*
Chipotle 453 4.4
Shake Shack 26 16.1

*Shake Shack’s price-to-sales multiple is based on the $48.62 price at 12:30 p.m. EST. Source: Company documents.

That’s a huge gap between the two price-to-sales multiples! Given the massive appreciation in Chipotle’s stock price since the close of its first day of trading — a more than fifteenfold increase in just more than nine years! — there’s a good argument to be made that the shares were undervalued at that time.

However, had Chipotle closed at $160 instead of $44 on its first day of trading — which would equalize the price-to-sales multiples — subsequent gains would have been significantly less impressive.

Buy potential performance at a discount, not a premium

Furthermore, with Chipotle, we are looking back at performance that has already been achieved, both in terms of the stock and the company’s operations. The Mexican chain has executed superbly well during that period.

With regard to Shake Shack — however likely you think a similar business performance is — it remains in the realm of possibility instead of certainty. I don’t know about you, but when I buy possibility, I like to buy it at a discount to the price of certainty.

Although I think Shake Shack’s brand positioning is comparable, and possibly even superior, to that of Chipotle, I’m not convinced the business fundamentals are as attractive.

For one thing, Shake Shack faces stiffer competition in its segment than Chipotle did (or does) in the likes of Five Guys and In-N-Out Burger. For another, Shake Shack’s same-store sales growth is significantly lower than Chipotle’s was, at just 3% for the 39 weeks ended Sep. 24 versus 10.2% for Chipotle in 2005, which was followed by 13.7% in 2006.

Don’t swallow these shares

Shake Shack may produce a premium burger — founder Danny Meyer refers to this segment as “fine casual dining” — but the stock is currently selling at a super-premium price. Paying that price is the equivalent of eating “empty calories” — it could end up being detrimental to your financial health.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 

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MONEY Food & Drink

Shake Shack Sets $21 IPO Price

So much for the initial estimates. Shake Shack’s IPO will take a few more dollars a share if you want to get in early.

MONEY

Shake Shack IPO Reveals Two Burgers, Two Americas

Passersby walk in front of the Shake Shack restaurant in the Manhattan borough of New York. Burger chain Shake Shack Inc, which grew out of a hot dog stand in New York's Madison Square Park, has filed for an initial public offering.
Keith Bedford—Reuters Passersby walk in front of the Shake Shack restaurant in the Manhattan borough of New York. Burger chain Shake Shack Inc, which grew out of a hot dog stand in New York's Madison Square Park, has filed for an initial public offering.

Could the burgers really be that much better? Shake Shack's remarkable IPO contrasts with McDonald's sagging fortunes.

We’ve gotten used to hearing we’re living in two America’s, separated by our economic fortunes, our politics…and now maybe even our hamburgers.

An exaggeration? Maybe, but look at how two of America’s favorite hamburger joints, the hip, coastal Shake Shack and old standby McDonald’s, have fared over the past week.

On Thursday, Shake Shack SHAKE SHACK INC SHAK 3.38% , founded by fancy New York chef Danny Meyer in 2004, pulled off an initial public offering that seems worth of a tech start-up. Shares, initially priced at $21, shot up to nearly $50 on Friday morning.

While Shake Shack isn’t above standbys like cheese fries, its menu which also features beer, wine and a popular portobello mushroom burger. In short, it’s not much of a stretch to say it targets what some call “coastal elites.”

In fact, just look at the map: Of 36 U.S. locations, just one is in the Midwest. And so far, the hamburger chain has chosen to open in money centers like London and United Arab Emirates before venturing into heartland spots like St. Louis or Kansas City.

ShakeShack

 

Shake Shack’s remarkable success contrasts with a tough week for McDonald’s MCDONALD'S CORP. MCD -0.7% . You don’t have to travel the Acela corridor to reach one of McDonald’s 36,000 worldwide locations, as this very cool map by data visualization artist Stephen Von Worley shows.

McDonaldsAcrossAmerica

 

But Americans seem to be losing interest in populist fare like Happy Meals and Chicken McNuggets. Perhaps more important, the company can’t seem to persuade its cash-strapped customers to splurge on items other than its popular Dollar Menu, making it hard to turn a profit.

With U.S. wage growth for many middle-class Americans still stalled seven years after the financial crisis, it’s not hard to see why. With sales down five straight quarters and the stock priced stalled, Chief Executive Don Thompson announced Wednesday he would step down in March.

MONEY stocks

3 Companies That May Not Last Through 2015

RadioShack consumers electronics store, Falls Church, Virginia.
Saul Loeb—AFP/Getty Images RadioShack consumers electronics store, Falls Church, Virginia.

Watch these companies closely this year.

For more than six years now, the stock market has defied naysayers in a bull-market run that has pushed major-market benchmarks to record levels. Yet no matter how strong the stock market is, you can always find pockets of weakness among certain companies that simply haven’t lived up to expectations. Indeed, in extreme cases, some companies find that it no longer makes sense to stay in business, either breaking themselves up in major asset sales or declaring bankruptcy. The result is often a plunging stock price that leaves shareholders with major losses.

To help you identify some potential danger areas, three Motley Fool contributors picked companies that they believe might not live to see the end of 2015. Their views certainly aren’t a guarantee of failure for these stocks, but they nevertheless believe that you should watch these companies closely before you put your investing dollars at risk.

Jeremy Bowman (Radio Shack)

Radio Shack has been a fixture in electronics retail for over a generation with over 4,000 stores nationwide, but this year could be its last. A combination of declining sales, steep losses, and pressure from its creditors may force it into bankruptcy and liquidation.

The company still brings in substantial sales at more than $3 billion over the last twelve months, but its share price has fallen all the way to $0.39 as of Monday’s close, valuing the company at $39 million, or slightly more than a penny for every dollar in sales.

Radio Shack was already in trouble this time last year with same-store sales falling by double digits, but the company’s hopes for a turnaround took a sudden turn for the worse when creditors rejected a plan to close 1,100 stores last spring, claiming that doing so would violate debt covenants. Since then, cash has evaporated, and the Shack was left with just $62 million in liquidity as of its third quarter earnings report when it turned in an operating loss of $114 million.

Since then, Radio Shack has resorted to what seem to be desperate moves, suspending employee 401(k) contributions and, in December, bringing in its third CFO in just four months. Its marketing chief also quit in December, during the crucial holiday selling season, a further sign that the company’s demise could come even sooner than expected.

The retailer’s moment of truth should come this Thursday, when the deadline it has with lender Standard General arrives. Radio Shack must prove it has $100 million in liquidity in order to implement a financing package with Standard General agreed on in October. If Radio Shack is unable to secure additional funding, the company’s prospects look essentially dead. Moreover, even if it shows up with the $100 million, that’s no guarantee it will remain viable through the end of the year.

Bob Ciura (Aeropostale)

Aeropostale AEROPOSTALE ARO 4.1% might not make it out of 2015 alive, even though shares of the teen retailer jumped more than 20% on January 8 after better-than-expected holiday sales. Aeropostale said comparable holiday sales fell 9%, better than last year’s 15% decline. But the results still signify this is a company in severe decline. Shares of Aeropostale lost nearly three-quarters of their value last year due to collapsing sales, and management’s plan to turn the company around mostly involves shuttering stores. The company plans to close as many as 240 Aeropostale stores and all of its P.S. children’s concept. Not only are total sales falling, but sales per square foot are falling as well, which means store closings are not likely to restore growth

Aeropostale announced a smaller-than-expected loss for the fourth quarter. Management expects the company will lose $18 million-$23 million in the quarter, down from a prior forecast of $28 million-$34 million. Still, this hardly seems reason to celebrate. Over the past three quarters, Aeropostale lost nearly $200 million, approximately double the loss from the same period one year ago.

The teen fashion landscape changes very quickly, and companies that fall out of favor find it hard to catch up. While Aeropostale suffers the effects, investors shouldn’t touch this company that might not survive through 2015

Dan Caplinger (Sears Holdings)

One of the most often-chosen stocks for a potential implosion is retailer Sears Holdings SEARS HOLDINGS CORP. SHLD 1.51% , which has struggled for years to navigate difficult conditions in its niche of the big-box retail segment. The company is on pace to lose money for the fourth year in a row, and restructuring charges and asset sales that for most companies are extraordinary events have become commonplace for the operator of Sears and KMart stores.

Sears is infamous for its long string of spinoffs, with last year’s Lands’ End LANDS END INC COM USD0.01 LE -0.08% IPO having been one of the more successful of its former parent’s corporate moves. Many believe that CEO Eddie Lampert’s primary strategy has been to unlock the value of Sears Holdings’ assets through such moves, with the eventual goal of leaving the money-losing retail business as a used-up husk. Yet many have been surprised at just how long Sears has managed to stay in business, and a recent hacker-attack against the company’s KMart division was just another problem that the company will have to face in trying to attract shoppers.

It’s entirely possible that Sears Holdings shareholders could receive further valuable distributions on their stock through spinoffs or other corporate moves. Yet the odds of Sears Holdings continuing in anything like its current form grow smaller every day.

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