While the winter season can sometimes bring out the holiday cheer on Wall Street, certain retail stocks to sell may court trouble. Certainly, it’s not everyone’s favorite topic. However, it’s also unavoidable. With a rough start in 2022, the year just kept worsening via geopolitical flashpoints, skyrocketing inflation and global supply chain disruptions, to name but a few concerns.
Over the last few months, the Federal Reserve committed to a hawkish monetary policy, entailing rising interest rates to combat the liquidity explosion that the coronavirus pandemic sparked. However, comments from some Fed officials suggest that borrowing costs may rise in 2023, boding poorly for already-embattled businesses. For struggling retail stocks to sell tied to the discretionary sector, that’s not good news.
Whether we’re talking about outside fundamentals or internal financial concerns, not all companies will win the holidays. Regrettably, investors will need to be cautious with the below retail stocks to sell.
| JD | JD.com | $57.18 |
| W | Wayfair | $36.64 |
| CVNA | Carvana | $7.71 |
| KSS | Kohl’s | $32.08 |
| BBBY | Bed Bath & Beyond | $3.40 |
| EXPR | Express | $1.42 |
| PRTY | Party City | $0.71 |
Retail Stocks to Sell: JD.com (JD)
Formerly called 360buy, JD.com (NASDAQ:JD) represents one of China’s largest e-commerce firms. As with U.S.-based counterparts, JD.com enjoyed a relevance surge throughout the early portion of the coronavirus pandemic. Indeed, the company benefitted from a hostage audience, feeding consumer needs in a relatively contactless format. However, the Chinese public is getting upset with its country’s draconian zero-Covid policy, leading to rising unrest.
To be fair, JD appears none the worse for wear at the moment. Over the trailing five sessions since the Nov. 29 close, JD popped up over 6%. Still, I think we must look at the bigger picture. Beijing’s imposition of zero-Covid policies already negatively affected the Chinese economy. Further disruptions like the unrest we’re witnessing will likely hurt growth projections.
In fact, the New York Times published a piece stating that the turmoil upended the global economic outlook. Given such far-reaching consequences, I’m having a difficult time seeing how JD cannot be affected eventually. Therefore, it’s one of the retail stocks to sell into (arguably irrational) strength.
Retail Stocks to Sell: Wayfair (W)
An e-commerce firm specializing in furniture and home goods products, Wayfair (NYSE:W) bounced dramatically higher from the spring doldrums of 2020. Benefitting from a combination of retail revenge and booming real estate sales (due to the then-low interest rate environment), Wayfair seemed to do no wrong. Then, the calendar turned to 2022 and all heck broke loose.
Indeed, on a year-to-date basis, W dropped nearly 84% of equity value. Because it clearly represented one of the hardest-hit retail stocks to sell, an argument might rise that Wayfair could turn into a contrarian idea. Still, I’m not really seeing it. On the technical front, shares slipped over 16% in the trailing month. Therefore, Wayfair failed to capture some of the broader near-term momentum that lifted other equities.
Moving forward, a depleted consumer base might represent the biggest headwind for W stock. Data from the U.S. Bureau of Economic Analysis reveals that the personal saving rate fell to near-historic lows. In other words, it’s no time to purchase discretionary items, making W one of the retail stocks to sell.
Retail Stocks to Sell: Carvana (CVNA)
A recipient of an unexpected tailwind during the Covid-19 crisis, Carvana (NYSE:CVNA) cynically benefitted from fears of the SARS-CoV-2 virus. Though government agencies mandated restrictions against non-essential activities, people still had places to go. But particularly in the east coast, folks relied on robust public transportation networks. Obviously, that wasn’t happening during Covid’s early phase, sparking demand for personal vehicles.
Even better, Carvana allowed customers to research their next ride from the comfort of their home. Once ready, the company delivered the car to the customer’s doorstep (not literally of course). The contactless approach bolstered CVNA, though at a premium. However, with people no longer scared about Covid-19, they no longer wished to pay the aforementioned premium.
Logically, CVNA tumbled – and quite badly. Since the beginning of this year, shares dropped 97% of equity value. Fundamentally, while vehicles themselves are important, people need to get them at the lowest price possible. Unfortunately, Carvana represents the higher-priced competitor, making CVNA one of the retail stocks to sell.
Retail Stocks to Sell: Kohl’s (KSS)
An American department store retail chain, Kohl’s (NYSE:KSS) already struggled well prior to the Covid-19 crisis. Since around 2003, KSS stock largely flatlined, with occasional gyrations to the top. However, such spikes rarely lasted long, with shares eventually succumbing to a broader horizontal listlessness. It’s down big this year, to be sure, dropping nearly 35% below parity. However, the more critical picture is its five-year loss of almost 33%.
Given that KSS represented one of the retail stocks to sell for years before the pandemic, I fail to see how the new normal will offer a better canvas. Don’t get me wrong, I’m sure that KSS and other names on this list can make for the occasional short-squeeze play. But as a long-term investment to bank on, Kohl’s faces relevancy issues.
In other words, Covid-19 disrupted social norms, meaning that people wanted to shop in the brick and mortars. However, e-commerce as a percentage of total retail sales is once again rising. Thus, KSS may again face the same headwinds as last time, making it one of the retail stocks to sell.
Bed Bath & Beyond (BBBY)
A chain of domestic merchandise retail stores, Bed Bath & Beyond (NASDAQ:BBBY) suffers from the same relevancy challenges as Kohl’s. Like other retail stocks to sell, investors lost patience on BBBY, unwilling to wait on management to right the ship. It’s down 79% for the year. In addition, shares slipped more than 30% in the trailing month, reflecting deep vulnerabilities.
Aside from the many fundamental headwinds such as poor consumer sentiment, Bed Bath & Beyond features terrible financials. For instance, Gurufocus.com labels BBBY as a possible value trap. Although some metrics looking intriguing – such as the company’s subterranean price-to-sales ratio of 0.04 times – BBBY’s three-year revenue growth rate (on a per-share basis) is 4% below parity. As well, the company’s profit margins sit in negative territory.
Looking ahead, I believe the company’s balance sheet will present problems. Most worryingly, BBBY’s cash-to-debt ratio is 0.04 times, worse than 91.5% of the competition. Because some lean years may lie on the horizon, having so much debt and so little cash imposes massive restrictions. I’m sorry but BBBY is probably one of the retail stocks to sell.
Express (EXPR)
When it comes to mentioning Express (NYSE:EXPR) as one of the retail stocks to sell, I’m torn. On the optimistic front, a bullish case exists and this involves normalization trends in the workforce. Should most companies mandate a return to the office, worker bees will need to upgrade their wardrobe. In turn, this dynamic may benefit Express.
On the other hand, economic realities may dictate that consumers will prefer instead shopping at cheaper alternatives or off-price retailers. More importantly, well before the new normal, millennials eschewed brand fashion labels for simpler (and cheaper) fare. Again, with macroeconomic headwinds imposing pain on the consumer, this phenomenon will likely accelerate.
Sure enough, Gurufocus.com labeled EXPR as a possible value trap. On paper, it may trade for only 6.4-times trailing-12-month (TTM) earnings. However, with a net margin of only 0.8% and a per-share revenue trend in negative territory, sustainability becomes a concern. I’m afraid EXPR represents one of the retail stocks to sell (or at least avoid).
Party City (PRTY)
A costume and party supplies specialist, Party City (NYSE:PRTY) brings much-needed levity to the seriousness of Wall Street. Therefore, it hurts on a personal level to discuss PRTY as one of the retail stocks to sell. While we Americans love an underdog story, Party City appears to be have fallen far too much to be salvageable.
On a technical basis, the volatility raises many eyebrows. Since the start of the year, PRTY hemorrhaged over 88% of equity value. What’s more, the near-term momentum is simply awful. In the trailing month, PRTY dropped over 58%. At some point, Party City is to launch a recovery initiative, the time to do so is now. With a price tag of only 70 cents a share, a delisting stands on the horizon.
Not surprisingly, Gurufocus.com labeled PRTY as a possible value trap. Both the company’s per-share revenue trend and profit margins sunk into negative territory. As well, its Altman Z-Score is 0.19, reflecting a distressed business facing bankruptcy risk in the next two years. In other words, don’t be a hero.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.