Target (TGT) is struggling to find its place in the retail landscape.
It is a discount retailer, yet it has trouble competing with Wal-Mart (WMT), particularly when it comes to groceries.
It wants to be a leader in e-commerce, yet it lags far behind Amazon.com (AMZN).
What is happening to Target may ring a bell.
Some investors may conclude that Target following the same path as Sears Holdings (SHLD) took to irrelevancy.
Potential investors interested in Target are likely enticed by the company’s high dividend yield, currently at 4.5%.
Target is a Dividend Aristocrat, a group of companies in the S&P 500 that have raised dividends for 25+ years.
You can see the entire list of Dividend Aristocrats here.
But dividends are reliant on the health of the underlying business. Sears was once a dividend payer, too.
Fortunately, Target and Sears are much more different than they are alike.
This article will discuss three reasons why Target is not the next Sears.
A Willingness to Adapt
Sears is in a death spiral. It lost $2.2 billion last year, roughly double the $1.1 loss from 2015.
With escalating losses, there are legitimate concerns about Sears’ ability to remain an ongoing concern.
The company ended last year with $3.57 billion in long-term debt, and another $1.75 billion in pension liabilities, compared with just $286 million in cash.
In response, the company is cutting costs and selling off assets wherever it can. It recently announced a new $1 billion cost-reduction program, including the closure of 150 stores.
And, in January Sears sold its crown jewel brand, Craftsman, to Stanley Black & Decker (SWK) for $900 million.
These are the key components of Sears’ turnaround efforts.
Source: 4Q 2016 Earnings Presentation, page 4
But with sales crumbling—comparable-store sales declined 10.3% during the holiday period—selling off assets and cutting costs is akin to tossing furniture overboard while a ship is sinking.
Sears finds itself in this position, largely because it effectively ignored the trends sweeping through the retail business over the past several years.
