Throwing Good Money After Bad: Sears Holdings Corporation (SHLD), Target Corporation (TGT), Kohl’s Corporation (KSS)

That darn third string
To say that Kmart needs to be cut loose is a nice way of saying, this dog needs to be put out of its misery. Kmart is clearly having trouble competing with Target Corporation (NYSE:TGT) and Walmart. Kmart’s gross margin last quarter was just 23.4% compared to 27.7% at Target and 24.85% at Walmart. With both Walmart and Target showing positive same-store sales, and Kmart showing same-store sales down 3.7%, shoppers are making the choice to walk away from Kmart every day.

One of the factors that Kmart said led to their declining sales was a, “significant decrease in consumer electronics.” This isn’t a surprise as even Best Buy is losing this battle. What was more condemning is, Kmart also said that they saw declines in grocery and household sales. Walmart and Target Corporation (NYSE:TGT) have both been expanding their grocery selections, and Walmart recently said it’s taking market share. The bottom line for Kmart is, sell it, spin it off, whatever it takes, Sears needs to let it sink or swim on its own.

Would you buy what’s left?
If Sears takes the steps to divide the company, and focus on the Sears Holdings Corporation (NASDAQ:SHLD) domestic business, the obvious question is, would investors buy? Given that Sears is currently expected to post losses each of the next two years, anything is better than where things currently stand.

Sears domestic business has positive same-store sales, and would have the opportunity to significantly increase their gross margin. Investors would need to treat this company as a turnaround play, and that is if the company would make these bold choices. In the meantime, investors have multiple choices of retailers that are doing better today. Kohl’s Corporation (NYSE:KSS) pays the highest yield at about 3%, and the company’s growth rate of 6.4% might be improved by being a bit more price competitive. Since Sears pays no yield and is expected to report negative growth, this is a no-brainer.

However, if investors are looking for the anti-Sears Holdings Corporation (NASDAQ:SHLD), look no further than Target Corporation (NYSE:TGT) or Walmart. Both of these companies are partially responsible for where Sears and Kmart are today. They both pay yields of over 2%, and are expected to grow by better than 8% to 11% in the next few years. Sears investors have two choices, either hold on and hope their company makes a wise decision to split, or stop throwing good money after bad. Given the alternatives available, I don’t see a great reason for investors to wait around.

The article Throwing Good Money After Bad originally appeared on Fool.com and is written by Chad Henage.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.