Black Friday, as the story goes, is said to be the first day of the fiscal year where retailers start making money. The success or failure of retail stocks to generate revenue in the nine weeks that follow Black Friday determines exactly how profitable a year has been.
In 2016, retail sales got off to a good start in November, up 5% over last year and 0.1% over an extremely strong October; online sales saw even greater growth, up 15.3% over the same month a year earlier.
The National Retail Federation predicted that retail sales in the all-important months of November and December would grow by 3.6%. The early numbers suggest the retail trade organization was right on target when it comes to this year’s results.
Early reports also suggest that while online revenues have grown at a healthy pace this Christmas, Amazon.com, Inc. (NASDAQ:AMZN) stock hasn’t really performed well heading up to Santa’s big day. Still, the company itself recorded its best holiday season yet — a sign that some brick-and-mortar retailers still have plenty to fear.
Every year there are winners and losers during the holiday season. The following seven retail stocks appear to have gotten coal for Christmas.
Retail Stocks That Christmas Forgot: Sears Holdings (SHLD)
If there ever was a slam dunk when it comes to predicting retail stocks that Christmas forgot, Sears Holdings Corp (NASDAQ:SHLD) is easily the one to top anyone’s list.
Sears has 20 straight quarters of declining revenue and $748 million in Q3 2016 operating losses. So it’s not hard to figure out that SHLD is going to report significant same-store sales declines for the all-important fourth quarter.
Companies are refusing to ship products to Sears; at this time of year, a retailer without inventory is like a hockey arena without coffee.
Sears has been on life support for several years and is so synonymous with bankruptcy that whenever I talk about retail stocks that might go bankrupt, I have to put “Not Sears” in the title if it’s not part of the story.
The fact is, Sears is running out of cash. At the end of the third quarter, it had $432 million in cash and available space on its credit facility — 67% less than a year ago.
So, if no one will sell you stuff — and even if they did, you couldn’t pay for it — how in the world does SHLD not get left behind at Christmas?
Retail Stocks That Christmas Forgot: Abercrombie & Fitch (ANF)
If you’re a value investor, you might be seriously considering buying Abercrombie & Fitch Co. (NYSE:ANF) stock at the moment. ANF is down 56% year-to-date and nearly 30% in the past three months alone. It hasn’t traded this low since 2008… and 2002 before that.
While tempting, here’s why you should avoid ANF stock.
Remember when Abercrombie was all about good-looking people wearing its clothes and working in its stores? Well, that sexist attitude has long since left the company. But investors have long memories. And even though that’s what everyone remembers about Abercrombie, it’s just a part of why ANF stock might still be a value trap despite trading for less than $12.
Although Hollister is doing well for the company, Abercrombie as a whole isn’t. Earlier this year, the American Customer Satisfaction Index ranked it last among 22 specialty retailers.
We saw many retailers go bankrupt in 2016. While Abercrombie didn’t, speculation is high that it might in 2017. Short of killer holiday results, ANF stock is too risky for most portfolios.
Retail Stocks That Christmas Forgot: Buckle (BKE)
In good times and bad, whether it was increasing same-store sales, it continued to operate a profitable business while rewarding shareholders for their loyalty.
That’s still the case, but two things have shaken my confidence.
First, its same-store sales declines are accelerating to historic levels. Analysts estimated Buckle’s November same-store sales would be -12.8%; they came in at -16.2%, more than double the same-store sales decline in November 2015.
Secondly, someone whose opinion I value very much when it comes to retail had an opportunity over the summer to check out some of Buckle’s stores to assess their retail readiness and came away unimpressed with both the product and design of its stores.
Every retail stock has same-store sales ups and downs, but now it appears as though the retailer’s not keeping up with the times. What was once a charming Midwest retail success story appears stuck in neutral.
I hope, for Buckle’s shareholders’ sake, that December comps are not nearly as bad as those in November. However, I’m not at all confident that this will be the case. BKE is less of a value trap than Abercrombie, but I’d wait for some signs that the retailer has figured out how to re-energize sales. Until then, Buckle will probably keep heading lower.
Retail Stocks That Christmas Forgot: Macy’s (M)
It hasn’t been a good year for Macy’s Inc (NYSE:M).
In August, Macy’s announced plans to close 100 more stores across the country to go along with the 41 closed in fiscal 2015. Through the first nine months of the year, Macy’s same-store sales were down 4%, with operating income off by $384 million, or 31.6%.
Lee Peterson, a senior executive with Columbus-based retail design firm WD Partners, recently wrote a guest post for Retail Dive, a digital publication focused on the retail industry. His headline — “How Macy’s dismantled everything once right about department stores” — said it all when it comes to Macy’s.
Essentially, Peterson went back to the merger of Federated Department Stores and May Department Stores, explaining how Terry Lundgren transformed a bunch of regional department store chains into one national brand (Macy’s), and in the process dismantled everything good about local-market retailing. Certainly, residents of Chicago can relate having lost venerable Marshall Field’s in that process.
Now, as Terry Lundgren gets ready to retire, and current President Jeff Gennette takes over at the beginning of March, Macy’s is one of many department stores struggling to keep pace with a changing retail industry.
With sales faltering, Gennette is going to have to quickly right the ship before Macy’s business is hurt on a more permanent basis. Whether he’s the right person for the job is still to be determined.
What we do know is that Christmas will likely have forgotten Macy’s this year.
Retail Stocks That Christmas Forgot: Express (EXPR)
It will likely be a good news-bad news scenario for Express, Inc. (NYSE:EXPR) when it releases its sales results for the key days leading up to Christmas.
According to MKM Partners analyst Roxanne Meyer, while most retailers were offering smaller promotions or discounts this holiday season, some — including Express — were more promotional this year compared to last year. That means revenues might go up … but profits will most certainly go down.
EXPR stock can ill afford to lose any more ground.
Down 37% year-to-date through Dec. 23, it has had only had two years of positive returns since it went public in May 2010 and has a five-year annualized total return of -11.2% — 26 percentage points worse than the S&P 500.
When Express announced Q3 results Dec. 1, Express dropped 20% on the news.
“We expect the holiday season to remain challenging as mall traffic and a highly promotional retail environment continue to be headwinds,” Express CEO David Kornberg said in its Q3 2016 press release. “That being said, we believe our focus and execution against our key priorities, will position our Company to create shareholder value over the long term.”
It might happen, but history suggests it won’t — especially this Christmas just passed.
Retail Stocks That Christmas Forgot: Lands’ End (LE)
A week before Christmas, Lands’ End, Inc. (NASDAQ:LE) announced that retail veteran Jerome Griffith was taking over the top job in March 2017, replacing one luxury retail executive for another.
While Griffith does have a strong retail background and grew luggage maker Tumi Holdings from $196 million in sales in 2009 to $547 million in 2015, Lands’ End has some serious issues to resolve that might challenge even someone has seasoned as Griffith.
The problem with the old CEO, Frederica Marchionni, who was let go in September, was that she alienated the company’s core customer by trying to go upscale with a brand that’s known, in part, for selling school uniforms and basic apparel items such as chinos and blazers.
Of the group of seven retailers on this list, Lands’ End is the most puzzling to me. In 2014, I wrote an article about how I thought it would thrive as an independent company. Boy, did that turn out to be absolutely off the mark.
Instead, it looks as though Lands’ End appears headed to bankruptcy if Griffith can’t right the ship in 2017.
Retail Stocks That Christmas Forgot: Wayfair (W)
They say you can often buy the shares of an initial public offering for less than their initial price within 12 to 24 months of going public. In the case of Wayfair Inc (NYSE:W), a home goods retailer with both retail stores and online sales, that’s exactly what happened.
Wayfair stock went public on Oct. 1, 2014, at $29 per share. It dropped below $29 shortly after its IPO and didn’t recover for another six months well into 2015.
And now it looks like it could test $29 once more.
Wayfair is down nearly 25% year-to-date and about 37% since hitting its all-time high of $56.84 in August 2015.
The problem with Wayfair is it currently doesn’t make money and may never do so if it doesn’t improve its gross margins, which were 23.8% for the nine months ended Sept. 30 — slightly lower than in the same period a year earlier. By comparison, Canadian furniture retailer Leon’s Furniture (OTCMKTS:LEFUF) has gross margins almost double those of Wayfair.
Nice idea, but bad retail stock.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.