Earlier this week, I talked about the changes in consumer buying habits in the grocery sector. It is important to understand that there seems to be a shift going on for various retail stocks as consumers are becoming less trendy in the past year. The hot stores and retail stocks are seeing slowdowns in sales and profits as consumers become more bargain-conscious.
This is even filtering down to the trendy stores that market to the teen and young adult market. These stores are seeing shoppers flee their once red-hot merchandise. Once you fall out of favor in this market, it’s difficult to recover, and investors need to avoid the retail stocks that have fallen out of favor and have poor fundamentals. Fortunately, Portfolio Grader can help us avoid the pitfalls of this sector of the retail market.
Aeropostale (ARO) is a great example of a retail stock losing its audience. The once-popular retailer operates 902 Aeropostale stores in 50 states and Puerto Rico, 79 Aeropostale stores in Canada, and 151 P.S. from Aeropostale stores in 31 states and Puerto Rico. ARO has fallen out of favor with its tricky target market, and sales and earnings have collapsed over the past year.
ARO stock has missed estimates the past two quarters, and analysts are rushing to downgrade the stock. ARO is not expected to turn a profit this year or next. Portfolio Grader saw the trouble coming and downgraded ARO stock to an “F” back in April of last year. Conditions have only gotten worse since then, and the stock is still a “strong sell.”
American Eagle Outfitters (AEO) is another once-popular retail stock that has lost its way. The company operates 893 American Eagle Outfitters stores and 151 aerie stand-alone stores, as well as 49 franchised stores in 13 countries selling apparel and accessories aimed at the 15- to 24-year-old market.
The company has seen sales and earnings slip in the past year and analyst estimates for this year and next have been lowered sharply in the past three months. Business has been so bad, the CEO had to leave and the Chairman is acting as CEO until a replacement can be found. Portfolio Grader downgraded AEO stock to an “F” back in July, and the stock remains a “strong sell” at the current price.
Urban Outfitters (URBN) was once the head of the class and could seemingly do no wrong. But that has changed in the past years as sales and earnings growth have faded from their once lofty levels. The company has operated 215 Urban Outfitters stores, 180 Anthropologie stores, 77 Free People stores, 2 Terrain garden centers, and 1 BHLDN store in North America and Europe.
Sales growth has slowed to single digits, and analysts have been lowering their estimates for both this year and 2015. Portfolio Grader saw the slowdown developing and downgraded URBN stock to a “D” back in August. The stock remains a “sell” until the fundamentals show signs of improvement.
Louis Navellier is the editor of Blue Chip Growth.