Too much debt and a big decline in same-store sales remain red flags for investors who may be considering other retail stocks amid the collapse of Sears Holdings Corp. (SHLD) .
Sears stock is falling through the floor Wednesday, dropping over 30% to just around $0.40 per share as of 2 p.m. ET. The stock was near $40 per share when CEO Eddie Lampert effectively took the helm in May 2013.
The key takeaways for analysts are too much debt and a big drop in same-store sales.
Debt as a Death Knell
With its debt ballooning, the immobility of Sears in the face of encroaching creditors is getting a great degree of attention. With good reason, experts say.
"The debt load is what kills these companies," Jan Rogers Kniffen, president of retail consultancy J. Rogers Kniffen Worldwide Enterprises, told Real Money. "It keeps the company from reinvesting in the business when they really need to be."
He added that the need to reinvest and reinvigorate retailers has been amplified by the presence of Amazon.com Inc. (AMZN) and its propensity to eliminate lagging, older competitors.
With too much debt on the table, Sears' stumble might be too much to recover from in the face of such competition.
"I think the debt levels that the company has acquired in trying to right itself are too high for the company to come back from," Real Money contributor David Butler said tersely in his analysis in September.
If true, Sears can be added to companies like Toys R' Us, Circuit City, and Sports Authority that serve as cautionary tales about over-levering a company.
Keep Em' Coming Back
An improvement in same-store sales can help boost even struggling retailers, as Sears saw last month.
Sears' shares jumped over 20% in pre-market trading about one month ago after it reported less-than expected losses in same store sales numbers.
Even a "not bad" result in this sector was able to revive the retailer.
"Rising same store sales can bail you out for sure," Kniffen explained. "If they just continue to fall, especially if you're levered, that kills you."
However, for those who wanted to get out of Sears stock when their investment was much more safe than it is now, the true trend in same store sales has been obvious for years.
In 2017 alone, same store sales at domestic Sears locations fell over 15%. Certainly a strong enough indicator on that front.
Leaders and Followers
Kniffen said that J.C. Penney (JCP) is the closest to follow to Sears' trend given its falling sales and debt burden.
To be sure, he left open the possibility for a strong recovery given the installation of new CEO Jill Soltau effective October 15.
"If they can pick up a lot of Sears' remaining market share and lose some debt, they might have some breathing room," he explained.
For a more safe company to bet on, he suggested Kohl's Corp. (KSS) .
"Kohl's is doing a great job and they are luckily not heavily indebted," he added.
Kohl's, an Action Alerts Plus holding, has beaten same store sales figures for five straight quarters and shares are up almost 67% in the past year in part due to comparable sales success.
These indicators are not the end-all, be-all of retail. But they appear to be quite good correlations at the very least.