Retail
Too Many Retailers Are Acting As If They Already Face a Recession
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Whenever there is any hiccup in the economy, consumers tighten their spending on non-critical items. That means that curtailing entertainment spending, dining out, and buying new clothing and apparel become targeted as ways consumers can save money without a serious disruption to their lives.
The media loves to scare the public about the next recession, and one ultimately will come, even if it is not as soon as some might worry about. The problem today is that retailers with their own branded clothing or with a set of common providers have been absolutely crushed during May and over a longer period. The one common theme among these retail players is that they all have apparel as their primary focus. The companies seem to be in a fight for relevance, if you only looked at their stocks, and while some companies are facing deep existential threats, there are some that have grown earnings and revenues and that are expected to keep growing. That sets a disturbing pattern for investors trying to figure out where is and is not safe to invest in retail.
24/7 Wall St. ran a screen of the top apparel retailers with performance over the past month using a Finviz screen. We aren’t even in a recession yet, and the performance drops that have been seen should make any investor wonder how bad these companies will see their shares fall when even the likes of Amazon and discount retailers are complaining about weak consumer metrics.
The overall economy does not have to be in a recession for many retailers to feel like they are in their own recession. After all, selling fashion, clothing and accessories to the public is subject to high seasonal issues and subject to weather, and there are generally three annual periods when the retailers have to get their merchandising right each and every time.
American Eagle Outfitters Inc. (NYSE: AEO) has its retail stores in major metropolitan areas, and its shares were last seen trading down about 27% over the past month. Its market cap was down to about $3 billion, and being valued at less than 10 times forward earnings is not enough to matter, despite an expected mid-single-digit sales growth and roughly 10% earnings per share growth expected to continue.
Abercrombie & Fitch Co. (NYSE: ANF) disappointed on its last earnings report with poor guidance, and it even announced it would close some flagship stores. Its stock was down over 40% in the past month, after a drop of about 29% over the past week. This is a turnaround candidate that just doesn’t seem to be able to hold on to a turnaround. Abercrombie has a market cap of close to $1.14 billion.
Express Inc. (NYSE: EXPR) is expected to have a loss for 2019, and that loss is expected to narrow in 2020, but with flat to slightly lower sales. The stock was down just about 20% in the past month and down 7% in the past week, and it lost two-thirds of its value from this time a year ago. Express sells apparel and accessories targeted to women and men mostly in the 20- to 30-year-old range. Its market cap is now just $205 million.
Francesca’s Holdings Corp. (NASDAQ: FRAN) is a women’s retailer that seems to be in a death spiral. It is now a penny stock that unlikely will keep a primary index listing without a reverse split, and its sales keep sliding. While shares were down about 27% in the past month, they are down over 90% from a year ago. As of February 2, 2019, the company operated approximately 727 boutiques, but it is now exploring strategic alternatives and announced senior leadership changes in recent months. With well over $400 million in last year’s sales, how confident does the market seem with a mere $17 million market cap?
Guess Inc. (NYSE: GES) sells at its own stores, plus other stores have carried the brand. Its shares were down over 21% in the past month and down about 33% over the past year. Guess has a $1.1 billion market cap, and its sales and earnings are expected to rise again in 2019 and 2020. As of February 2, 2019, Guess operated 1,161 retail stores in the Americas, Europe, and Asia, and its licensees and distributors operated an additional 558 retail stores globally.
Gap Inc. (NYSE: GPS) has seen its namesake brand underperform, but now even Old Navy is performing badly. All this is just ahead of a would-be break-up of the company in which Old Navy will trade as a standalone company. Is that even possible, given how badly the stock has acted of late? Gap is down 12% over the past week, about 27% in the past month and by just over a third from this time last year. Its market cap is now just $7 billion, and the entity has faced numerous issues over that past two decades.
J.Jill, Inc. (NASDAQ: JILL) was crushed after earnings recently, despite still having a slight profit. Also, short sellers have marked it as fair game. The shares fell 61% last week, for better than a 70% drop in May, and that’s about the same as it was a year ago. J.Jill is down to a $68 million market cap, despite revenues last year hitting $700 million.
Lands’ End Inc. (NYSE: LE) may seem like more of a catalog and mail order retailer, but revenues and operating income have fluctuated in a range over the past four years. Its market cap is barely $400 million, versus $1.45 billion in sales last year. One issue that may be impossible to ignore is that as of February 1, 2019, it operated 49 Lands’ End Shops at Sears stores. When was the last good thing that happened at Sears? Lands’ End shares were down 28% over the past month, and it’s down about 37% from a year ago.
Tailored Brands Inc. (NASDAQ: TLRD) is still worth only about $263 million in market cap, but the owner of Men’s Wearhouse, Jos. A. Bank, Joseph Abboud and others has seen its shares slide ever lower. The drop of 32% in the past month made for an 84% drop from this time a year ago. Revenues are still sliding gradually each year (to $3.2 billion over the past year), and analysts are calling for a tiny drop in 2019 as well. This one also remains a target of short sellers.
Tilly’s Inc. (NYSE: TLYS) has a market cap of close to $230 million, but that’s after a share price drop of 25% in the past week. It has now lost over 34% in the past month and is down just over 40% in the past six months. Targeting young men and women, and boys and girls, Tilly’s had over 225 stores on last look. It sells online and provides third-party merchandise assortment across its various product categories as well. Tilly’s has seen revenues ratchet higher on a slow pace to almost $600 million over the past year, and the company is expected to keep a mid-single-digit sales pact in the next two years with continued earnings growth.
Urban Outfitters Inc. (NASDAQ: URBN) doesn’t grow as fast as it used to, and now the company has multiple retail and apparel store name destinations. It has managed to keep slowly growing its revenues in recent years, but the investing public is now paying less than 10 times past and expected earnings per share, and its value is about $2.3 billion. Shares of Urban Outfitters were down 24% in the past month, but it is down over 50% from its peak in 2018.
Things may sound awful for these specialty players, but look elsewhere with poor performance outside of the major discounters in clothing and accessories. Nortdstrom Inc. (NYSE: JWN), the last of the independent high-end retailers in which you can still trade the stock, is now down over 50% from its 52-week high, and it cannot seem to escape the whittling away from luxury sales and upscale sales happening at all levels of retail apparel and accessories. Dillard’s Inc. (NYSE: DDS) continues to slide, and the long-term death march continues at Macy’s Inc. (NYSE: M).
Even Kohls Corp. (NYSE: KSS), which is currently expanding its drop-off/return pact for Amazon customers (regardless of what item is bought) lost more than one-quarter of its market cap during May after earnings disappointed.
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