It’s supposed to be the best time of year for retail stocks, as investors observe all the frenzied holiday shopping and assume stores are making money hand over fist.
This year’s all-important November and December gift-giving season hasn’t been a bullish one for every retailer, though. Some retail stocks have imploded (or continued to unravel) within the past couple of weeks.
The fact that these stocks and their underlying companies are performing so poorly — even now, when the tide is rising for most retail stocks — is a major red flag that these companies are in serious trouble.
Here are the five most troubling names in retailing today.
Retail Stocks in Trouble: RadioShack Corporation (RSH)
It’s not exactly a veiled secret that RadioShack Corporation (RSH) has been struggling for a while. The company has lost money in each of its past 11 quarters, with each loss being worse than the prior one, on a year-over-year basis.
The third quarter loss of $161 million reported on Thursday was the second-biggest of the 11 yet, as was the operating loss of $1.23 per share of RSH stock. Revenue of $650 million was also the worst quarterly revenue in years.
The plans to cut $400 million in annual costs announced with last quarter’s earnings are certainly the kind of news that could restore hope for owners of RSH stock, but those pending cost cuts could further hinder the company’s ability to drive sales. Namely, one of the proposed cuts is axing part of the company’s field and store support.
Retail Stocks in Trouble: Abercrombie & Fitch Co. (ANF)
After nearly 20 controversy-laden years at the helm of Abercrombie & Fitch Co. (ANF), CEO Michael Jeffries is finally stepping down. It was more than past time for it to happen though.
ANF stock has fallen 63% since November 2011 and currently prices where it was in the middle of 2004. That makes it one of the worst retail stocks for the past few years.
And yes, the stock’s demise was entirely based on the company performance.
The company’s most profitable quarter was the $2.40 it earned in the fourth quarter of 2007. Analysts expect earnings of only $1.18 per share of ANF stock for the current quarter, with sales and profits both expected to decline in the coming year.
Abercrombie & Fitch can start to turn things around without Jeffries in the way, but it could take years to undo the damage he’s done to the brand’s name.
Retail Stocks in Trouble: Francesca’s Holdings Corp (FRAN)
Francesca’s Holdings Corp (FRAN) shares may have bounced 31% since last week on the heels of news that the old CEO was gone and a new one had been named, but that barely made a dent in the 69% pullback FRAN stock had suffered between 2012’s peak and lows hit in early December.
This name is still one of the worst-performing retail stocks in the past couple of years.
There’s no real assurance new chief executive Michael Barnes is going to have any more luck than outgoing Neill Davis did either…. at least not any time soon. As Stifel’s Richard Jaffe explained:
“… We believe that change is good for the company, given the weak results since 3Q LY and that Barnes, with his strong background in the industry and proven track record, can help improve the business longer term. However, near term, we believe the outlook is uncertain, so the challenge for us is timing and valuation. Therefore, we reiterate our Hold rating as we believe reward potential is limited near term, and risk, given the current fashion, merchandising, and retail consumer challenges, remains significant.”
It’s not exactly a screaming endorsement of FRAN stock. In the meantime, don’t rule out the possibility that things could get worse for Francesca’s Holdings before they get better as the transition and overhaul get underway.
Retail Stocks in Trouble: Aeropostale Inc (ARO)
Rather than high-end clothing intended to last a while, teens, tweens, and even 20-somethings have migrating (and still are migrating) to lower-priced garments that may not be of the highest quality, but look good for a few wears.
As proof of its growing irrelevance, a top line of $2.4 billion in 2011 for Aeropostale has been whittled down to only $1.9 billion for the past 12 months. The earnings of $2.49 per share of ARO stock has slumped to a loss of $3.35 per share for the past four cumulative quarters.
The stock’s price has reflected these weakening results; ARO stock has lost 93% of its value from its 2010 peak price of $32.24.
That’s the worst of the worst performance among all the major retail stocks for that timeframe — and there’s no end in sight.
Retail Stocks in Trouble: Sears Holdings Corp. (SHLD)
Last but not least, Sears Holdings Corp (SHLD) continues to be dismantled, largely by the hands of its CEO and hedge fund manager [not to mention largest shareholder of SHLD stock] Eddie Lampert.
On the surface, and when just reading the company’s report, last quarter seemed like evidence that the turnaround for Sears Holdings was finally taking hold. The trend of earnings before interest, taxes, depreciation and amortization (EBITDA) trend was reported as “positive”, and the capital structure was “enhanced.”
What was glossed over regarding the third quarter numbers for SHLD stock was how EBITDA as a percentage of sales actually shrank — significantly — and the loss of $548 million was the second-biggest on record for the retailer. The biggest was the previous quarter’s loss of $573 million.
Things aren’t improving for Sears, despite the spin.
Indeed, with a quarterly cash-burn rate of more than half a billion dollars now, SHLD stock is one of those retail stocks that may not be around a year from now — at least, not in its present form. A bankruptcy reorganization may well be its best bet for survival now, while there’s still something left to salvage.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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