The retail sector is a war zone right now, with shares getting smashed lower on a combination of macro-level headwinds and intra-sector market share loss. Put more simply: At a time when overall retail sales are stumbling, traditional retailers are also suffering a market share loss to online retailers like Amazon.com, Inc. (NASDAQ:AMZN).
It’s a nasty double whammy. And it has investors aggressively bailing out.
Turning to the macro data, retail sales grew at a weaker-than-expected 0.4% month-over-month rate in April versus the 0.6% rise expected. Auto sales rebounded after three straight months of sizeable declines.
And nonstore retailers (AMZN and its ilk) put in a strong performance. But in the third straight month of weakness was the general merchandise citatory, with the department store subcomponent falling flat.
The downward spiral is only accelerating. As a result, here are seven retail stocks to avoid or sell:
Retail Stocks to Avoid: Gap (GPS)
So much for the turnaround effort, huh? Gap Inc (NYSE:GPS) stock is dropping out of a two-month consolidation range near $26, setting up a test of the 50- and 200-day moving averages ahead of a likely drop to eight-month lows near $21 — which would be worth a near 20% decline from here.
As mentioned above, GPS stock has been a turnaround play amid ongoing trouble at its namesake Gap brand and high-end Banana Republic label. And investors were hoping for Gap’s new leadership and the eighty-sixing of its monthly sales report would provide better long-term clarity and allow Gap to stay ahead of the trend.
The company will next report results on May 18 after the close. Analysts are looking for earnings of 29 cents per share on revenues of $3.39 billion. The May $26 GPS puts recommended to Edge Pro subscribers are up 13% since recommended on Thursday night.
Retail Stocks to Avoid: Macy’s (M)
Macy’s Inc (NYSE:M) stock has been smashed out of a five-month consolidation near the $30-a-share level after reporting disappointing results earlier in the week. The drop takes M stock all the way back to 2011 levels — setting up a return to support levels near $20 from that year for a further 17% decline from here. But with Macy’s shares down, it’s still not a buy.
The company reported earnings of 24 cents per share (12 cents below estimates) on a 7.5% drop in revenues (also below estimates). Same-store sales declined 5.2%. Management extolled its new initiatives, but investors couldn’t be bothered. The company will next release results on Aug. 10 before the bell.
So why all the trouble for Macy’s? It starts with sales, which have taken a hit due to the shift in consumer trends. You see, people would increasingly much rather spend all their money in a one-stop shop like Amazon.com than to haul off to Macy’s.
Retail Stocks to Avoid: Nordstrom (JWN)
Nordstrom, Inc. (NYSE:JWN) shares have collapsed out of a three-month uptrend and have once again moved below their 200-day moving average. The decline returns the stock to its March lows, representing a critical test of support. A failure here would set up a test of the early 2016 lows near $35 — which would be worth a 17% decline from here.
Nordstrom reported mixed results on Thursday, with earnings of 46 cents beating estimates by 19 cents. But same-store sales dropped 0.8%. The company will next report results on Aug. 10 after the close.
But not everyone is bearish here. Dana Blankenhorn sees a way for JWN stock to survive through exclusivity and other measures.
Retail Stocks to Avoid: JC Penney (JCP)
J C Penney Company Inc (NYSE:JCP) shares have dropped like a stone out of a long, steady downtrend channel returning to levels not seen since 1988. Yes, I looked. The fall from grace has been epic: A 94% drop from the 2007 high of $76.66 and an 89% drop from the 2012 high of $42.94. Since December, JCP stock has fallen more than 50% as investors rapidly lose faith in turnaround efforts including appliance sales.
The company reported messy, weaker-than-expected quarterly results on Friday with a GAAP earnings loss of 58 cents per share versus the 23 cents loss estimated.
Management floated a pro-forma six cent per share profit including $117 million from asset sales, but it was largely ignored. Revenues fell 3.7% from last year to $2.7 billion. Same-store sales fell 3.5% from last year, which was a weaker-than-expected plummet.
Retail Stocks to Avoid: Kohl’s (KSS)
Kohl’s Corporation (NYSE:KSS) shares fell out of a year-to-date trading range on quarterly results, returning to mid-2016 levels and setting up a return to two-year lows near $32, which would be worth a 12%-plus decline from here. The results themselves were mixed, with earnings of 39 cents per share beating estimates by 10 cents, but revenues coming in weaker, down 3.2% from last year. Same-store sales also fell by 2.7%.
Still, KSS didn’t do as bad as its other retail brethren, and there could possibly be some long-term value, but it faces an uphill battle against entrenched digital retailers.
The company will next report results on Aug. 10 before the bell. UBS analysts lowered their price target following results, highlighting the same-store sales drop.
Retail Stocks to Avoid: Bed Bath & Beyond (BBBY)
Shares of Bed Bath & Beyond Inc. (NASDAQ:BBBY) are breaking down out of a seven-month consolidation range continuing a decline that’s pushed shares down more than 50% from their early 2015 high.
The company issued disappointing forward guidance on April 5, overshadowing an earnings beat and a 3.4% revenue rise, as management warned of upwards of a 10% decline in earnings. The resulting drop returns shares to levels not seen since 2010.
Watch for a move below $35, which would violate seven-year support and set up a return to 2009 lows below $30 — which would be a 20% decline from here.
The company will next report results on June 21 after the close. Analysts are looking for earnings of 66 cents per share on revenues of $2.8 billion.
Retail Stocks to Avoid: Sears Holding (SHLD)
Shares of troubled mall icon Sears Holding Corp (NASDAQ:SHLD) have dropped below their 50-day moving average, violating its four-month uptrend and setting up a return to late March lows near $8 for a possible 16% decline from here.
Although shares nearly tripled off of their February low into the April high near $14, solvency concerns remain a problem after a “going concern” note was added to its 10-k filing in March.
The company will next report results on May 25 before the bell. Analysts are looking for an earnings loss of 72 cents per share on revenues of $4.1 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.