It’s beginning to look a lot like Christmas, and that naturally means a big focus on holiday spending. After all, the fourth quarter is crucial for a host of retailers out there, and a bad few months to close the year could mean a bad year overall regardless of other sales trends.
When looking at the retailer sector, however, there are some stocks that are already looking mighty ugly as we approach the all-important sales date of Black Friday.
And based on recent trends, these stocks are sure to blow it in the first big holiday sales push — and see serious pain to their share prices as we close 2015 and enter the new year.
Unsurprisingly, a lot of these nasty names are in retail. A recent Reuters report noted that mall traffic was generally weak in Q3, and a whopping 61% of merchants reported lower-than-expected revenue in their latest earnings.
If you’re looking for stocks to return and exchange, these five retailers should be at the top of your list.
Retail Stocks to Return: Gap Inc. (GPS)
- Market Cap: $11 billion
- YTD Returns: -34%
Gap Inc. (GPS) is the parent of The Gap, Old Navy, Banana Republic and other mall favorites. Unfortunately, the diverse portfolio of retailers hasn’t helped GPS stock sell more.
Most recently, Gap Inc. posted a same-store-sales decline of 2%, and once again barely met the mark on Wall Street’s earnings targets. GPS did post a small miss on the top line again in its Q3 numbers, however, after missing revenue targets this summer in its Q2 report as well.
GPS stock has seen minor signs of life in the last several trading days, but the downtrend is undeniable with the stock down nearly 35% this year and almost 45% from its late 2014 high.
Retail Stocks to Return: Kohl’s (KSS)
- Market Cap: $9 billion
- YTD Returns: -20%
Kohl’s Corporation (KSS) started the year fairly strong, but has flopped more 40% from its spring highs and is now deeply in the red after two of the last three quarterly reports showed deterioration in sales as we approach the all-important holiday shopping season.
First, KSS stock dropped by double-digits in May after its earnings came in strong but sales missed expectations. Then, in August, the company missed on both the top and the bottom line by a pretty wide margin. In November we saw some modest signs of hope as sales moved higher, but considering the huge decline across the last several months, investors should be wary.
Remember, Kohl’s was dead money from 2009 through 2014, until traders latched on to a multi-year “greatness agenda” growth plan and restructuring. We’ve seen serious signs in 2015 that the plan isn’t working yet, if at all, and it’s a risky proposition to bet on KSS until investors witness consistent sales growth.
Retail Stocks to Return: Walmart (WMT)
- Market Cap: $190 billion
- YTD Returns: -30%
It seems like all I do is kick around Wal-Mart Stores Inc. (WMT). But frankly, it’s so easy to do so — and it’s important that investors not be fooled into thinking a stock with a big brand and a big market cap is a safe bet or a bargain.
Consider that Warren Buffett just sold about 7% of his stake in WMT stock. Or that, back in January, Walmart had forecast $4.70 to $5.05 in earnings and now recently “raised” its full-year forecast to $4.50 to $4.65 per share after it cut guidance and saw shares crash double-digits in one day.
Oh yeah, and consider that WMT stock is down 30% YTD in 2015 while the S&P 500 is slightly in the green. WMT is also down 25% in the past two years vs. a 16% gain in the S&P. Over the past five years, the big-box retailer returned a measly 26% vs. while the S&P 500 has nearly doubled.
Sure, there’s a 3.3% dividend. But with consistent underperformance like that, who cares? Rember, WMT suffered five straight quarters of same-store-sales declines through early 2014, and a staggering nine consecutive quarters of sales decline through mid-2011. Eventually the bar is so low that even a dog like Walmart can jump over it … but that’s certainly not a reason to buy, or to be hopeful that holiday sales will impress.
Retail Stocks to Return: Nordstrom (JWN)
- Market Cap: $11 billion
- YTD Returns: -27%
Nordstrom, Inc. (JWN) missed big-time on its Q3 earnings, crashing by double digits in mid-November. How big-time? Last year, Nordstrom posted 73 cents in EPS and Wall Street was looking for 72 this time around … but JWN could only come up with 42 cents in earnings. Revenue was up year-over-year but also missed the mark by a wide amount.
Shares were fading before then based on fears of a weak holiday quarter, but that massive miss just in time of the Christmas rush is very bad news for JWN stock holders.
The icing on the cake is that, amid this serious crunch in sales, Nordstrom is plowing $4.3 billion into e-commerce and store spruce-ups over the next five years. That’s 5% of total sales — presuming, of course, sales actually continue as predicted.
Bulls will say that Nordstrom is investing in growth, but given the recent pain it’s natural to wonder whether the big spend during a time of big earnings misses is only going to make headwinds stronger on the EPS front. If the retailer is forced to discount its merchandise even as it invests big in this project, the earnings headwinds — and headwinds for JWN stock — could be fierce in 2016.
Retailers to Return: Macy’s (M)
- Market Cap: $13 billion
- YTD Returns: -40%
Macy’s (M) is the worst 2015 performer on this list, crashing and burning in the second half of the year as earnings and sales have deteriorated sharply lately.
Most recently, Macy’s saw an profits drop from $217 million to $118 million year-over-year while revenue declined more than 5% in Q3 vs. 2014. This comes after weakness in Q2 that included a 26% drop in profits and a roughly 3% drop in sales, and confirmed to many investors their initial fears that the party is over in M stock.
Once again, as with Walmart, investors may be tempted by the 3.7% dividend yield and the big name that seems to have staying power. But don’t be fooled by Macy’s after this ugly earnings track record and a very steep drop in share price lately.