In this current season, the back-to-school trend is the one everyone is watch — aside, of course, from the most recent earnings that are rolling out.
That’s why now is a good time to check on some retail stocks that may have a harder time than most this season.
K-12 back-to-school spending is expected to rise slightly to $27 billion, according to the National Retail Federation. The downside of that is the fact that spending in 2012 was more than $70 billion. For the past four years, sales have been off from that high. College back-to-school spending is actually projected to contract.
That isn’t a very forgiving landscape for retailers, especially ones that are already struggling.
Following are the seven retail stocks to clear from your closet right now.
Retail Stocks to Sell: Land’s End, Inc. (LE)
Land’s End, Inc. (NASDAQ:LE) has been around for more than 50 years, started by Gary Comer in Chicago. And it had quite a run.
The only problem was it never quite maintained the trajectory of its potential. Comer was an advertising copywriter by profession and a sailor by passion. That launched an interesting and unique line of clothing for sailors and landlubbers alike.
It was one of the first retail stores to build an online store. Sales were growing and business was chugging along when it happened. Sears Holdings Corp (NASDAQ:SHLD) bought LE in 2002. Sears was looking to attract new, younger buyers and upgrade its image. LE saw the opportunity to get 1 million square feet of retail space in strategic locations on the cheap.
But the road to hell is paved with good intentions as they say. In the past decade, the stock is off 51%. The mail order catalog business grew scores of competitors and no one really managed the LE brand during an industry transition to niche markets.
Retail Stocks to Sell: CafePress Inc (PRSS)
CafePress Inc (NASDAQ:PRSS) considers itself an online gift shop. When it started a collective site for designers and customers to meet to come up with funky coffee mugs with cool sayings or an ironic t-shirt it was unique and cool. That’s what made it so popular and got PRSS to go public.
But that popularity is always shifting, and for PRSS. competition started from hip clothing stores with brick and mortar stores as well as massive online presences. PRSS was running with the big dogs, but was now using a dated strategy that was pigeonholing the company to the point of suffocation.
In 2014, PRSS brought in a new CEO to turn things around. And he is still trying to turn things around.
Bottom line: this is a cool, quirky company but it is not a stock you should own. It should be taken private again where it could survive on its own terms.
Retail Stocks to Sell: Nordstrom, Inc. (JWN)
Nordstrom, Inc. (NYSE:JWN) is an upscale retailer that began its journey with a flagship store in Seattle, WA more than a century ago.
In good times, JWN is the go-to shop for design and brand conscious buyers. Store have a live piano player on the main floor, not piped in music. They have a no questions asked return policy and customer service that is truly amazing.
The problem is, we’re not in good times. Aspiring consumers are going down market, not up. And the millennials are spending most of their money on student loans rather than a new designer dress or business suit.
There’s little doubt JWN will work its way out of this, but there’s little growth in the sector and all its attempts to sell through discount operations like Nordstrom Rack, have only served to dilute the brand and confuse consumers.
It will take a while until JWN gets its mojo back. It’s off 48% in the past year and not even its 3.8% dividend makes it attractive at this point.
Retail Stocks to Sell: Tilly’s Inc (TLYS)
Tilly’s Inc (NYSE:TLYS) reported its Q1 numbers in late May. Net sales were flat compared to the same quarter last year and same store sales (which include online sales) were down 4.1%.
This is an online retailer in the most treacherous space there is – the tween, teen and 20something market. This is all about fashion, and fashion shifts on a dime. And given the fact that now niche clothing retailers are posting their own local, hip clothes online, there are fewer reasons to wear clothes that aren’t exactly what consumers want.
TLYS is in a volatile space in good years, but we’re expecting the U.S. economy to slow in the last half of 2016 and there’s little that is going to boost this stock’s upside.
In the past year the stock is off nearly 40%, 13% year to date. That is a signal there are deeper issues here than just a cyclical down move.
Retail Stocks to Sell: Boot Barn Holdings Inc (BOOT)
Boot Barn Holdings Inc (NASDAQ:BOOT) website leads with this statement: “Founded in 1978, Boot Barn is the largest and fastest-growing lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S.”
The problem is, BOOT isn’t growing. It will report its Q1 earnings next week (July 26), but looking at the earnings from its last report is not encouraging. It missed on both the top and bottom lines.
To compound the problem, the West is going through some tough times: Between the implosion of the oil and natural gas boom to the drought and severe weather, its main clients aren’t exactly in a spending mood.
The stock went public in late 2014, just as Saudi Arabia decided to overproduce oil to drive the growing U.S. oil business out of business. But BOOT continues to do what a young stock does, it continues to expand, inflating its numbers with more revenue (and debt). But this is a bad market to grow into. Maybe that’s why the stock is off 72% in the past year.
Retail Stocks to Sell: Restoration Hardware Holdings Inc (RH)
Restoration Hardware Holdings Inc (NYSE:RH) is a high-end furnishings shop that really had some traction going through the 2000s. But when the crash came, there was little doubt that RH was going to feel the pinch.
RH IPO’d in 2012, after most of its allure was already fading. And it did the typical niche market thing and started expanding its stores across the nation in first and second tier high net worth areas. Most of the items were priced at premiums but affordable enough that consumers could pick up piece here or there and build an RH collection.
But sales slowed and people began gravitating to more basic items and less ostentation. RH drilled down into baby collections, art and even teen furnishings and accessories. To no avail.
It’s story arc can be told in its stock price. Since its launch in 2012, the stock is off a mere 2.5%. But over the past year, the stock is off 71%. Basically that means the stock had its moment in the sun, and now it’s gone.
Retail Stocks to Sell: Mattress Firm Holding Corp (MFRM)
Mattress Firm Holding Corp (NASDAQ:MFRM) does exactly what its name implies. The company and its franchisees operate 3400 stores across the country.
That means MFRM derives a good piece of its revenue from its franchise royalties. When the economy is expanding, small businesses grow. With the graying of the Baby Boomer generation, some people look to opening a small shop to provide some income and keep themselves busy.
But the crash has put a crimp in many of those retirement dreams. And the weak economy means sales of high-end mattresses, which can run to $3000 or more, aren’t exactly flying off the shelves.
Q1 earnings were reported in early June. Revenue was up but same store sales was down. But those two pieces of information aren’t contradictory. In the quarter, MFRM added more than 1000 stores to its business, which found its way to the revenue number. The same store sales tells the real story. It’s why the stock is off more than 50% in the past year.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
