To say the past year has been a tough one for retail stocks would be a considerable understatement. The industry’s key names are collectively still in the red since peaking in the middle of last year despite a post-Donald-Trump-election-win bounce.
The explanations for the group-wide weakness have varied from an excessively strong U.S. dollar to overbearing e-commerce competition to a growing disinterest in consumerism itself. And, there’s a fair amount of truth in each complaint.
The good news is, as they have so many times in the past, most retailers will work past the headwind and get back on a firmer foundation. The bad news is, some retailers were already in dire straits before the current round of malaise struck, and likely won’t be able to shrug off the headwind. A few of them may be pushed past the point of no return.
Here’s a closer look at five retail stocks that may not be around next Christmas … at least not as we know them today. If not bankruptcy or a reorganization, too many of them are still apt to dish out miserable results for shareholders.
Retail Stock to Sell: Macy’s (M)
Fortunately, department store chain Macy’s Inc (NYSE:M) has a huge real estate portfolio it can lean on should things continue to deteriorate on the revenue front. Unfortunately, that’s not a long-term solution. Monetizing its properties doesn’t necessarily mean the retailer’s business will improve … and that’s the far more important missing ingredient right now.
Though it has only been a modest decline and Macy’s is still plenty profitable, the top and bottom lines have been headed in the wrong direction lately.
The tide is expected to turn again next year, but considering Macy’s was viewed as one of the stalwart retail stocks, it’s difficult to have faith after it met a headwind.
Retail Stock to Sell: Sears (SHLD)
Speaking of retail stocks that are being propped up by the company’s real estate value, Sears Holdings Corp (NASDAQ:SHLD) is the poster child for the idea. Unlike Macy’s though, Sears CEO Eddie Lampert has already sold off its best and most marketable properties — there’s not much left to sell.
And not surprisingly, none of the fund-raising has helped.
The company is now well into a decade of year-over-year declining revenue, and the losses continue to get bigger. There’s no end in sight.
Retail Stock to Sell: Abercrombie & Fitch (ANF)
To be fair, it wasn’t entirely on Michael Jeffries’ — the former CEO of Abercrombie & Fitch Co. (NYSE:ANF) — that the once-iconic retailer has virtually imploded since 2011. Its looks and shtick were once red-hot, but that flavor of fashion (and malls in general) has somewhat fallen out of favor. The same paradigm shift has adversely impacted a lot of retail stocks.
Calling a spade a spade though, after a string of insulting comments, the death blow was dealt in 2013 when something Jeffries said in 2006 resurfaced. His statement? “We go after the cool kids. A lot of people don’t belong, and they can’t belong. Are we exclusionary? Absolutely.”
Consumers never forgave the company for the comment, and that’s been reflected in the numbers.
Retail Stock to Sell: Staples, Inc. (NASDAQ:SPLS)
Earlier this year, Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NYSE:ODP) were petitioning to merge as a last-ditch means of defending themselves from Amazon.com, Inc. (NASDAQ:AMZN); the e-commerce company has been chipping away at the retailers’ business for years now.
That request was ultimately denied by the Department of Justice, however, which was concerned that the loss of another player would concentrate the market to too few players.
There’s a dirty little secret about that potential pairing, however — Staples needed Office Depot a lot more than Office Depot needed Staples. Staples continues to watch its top and bottom lines dwindle, and there’s nothing on the horizon that can stop that trend. Something’s got to give.
Retail Stock to Sell: Barnes & Noble (BKS)
Last but not least, add bookseller Barnes & Noble, Inc. (NYSE:BKS) to your list of retail stocks that for one reason or another could be in more trouble a year from now than they are today, now that books and CDs have officially become quaint.
Yes, like Macy’s and Staples, there will probably be a company known as Barnes & Noble come next November. Things could be ugly between now and then though.
The retailer has swung back to a state where it’s booking more losses than profits, and it’s getting painfully low on cash … $14.3 million as of the most recently reported quarter.
If the current quarter isn’t a good one — and its Q4’s are getting progressively weaker too — it won’t be liquid enough to withstand the following three quarters.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.