A rising tide for U.S. consumers — cue booming jobs numbers and record consumer sentiment — still can’t help some struggling retailers.
Yes, there are occasional short-term uptrends in the stock for swing traders, such as a 7% bump about a month ago after earnings that showed losses that weren’t as terrible as expected. But make no mistake — this is a stock with one foot in the grave. It’s trading at less than $1 a share, and is down a staggering 98% in the last five years.
Some would claim that Sears is its own unique problem, with the slash-and-burn mentality of CEO Eddie Lampert marching the 130-year-old company to the grave just as fast as the pressures brought on by Amazon.com AMZN, -1.34% (up 60% so far this year). However, Sears is far from alone among merchants teetering on the edge of irrelevance.
So while the S&P 500 index SPX, -0.04% has set 19 record closes this year, making investors plenty of money, here are five more retailers investors should avoid.
Back in the 1990s, GNC Holdings GNC, -0.25% was ahead of its time in some ways. The stores sold protein powders to weightlifters, oils and extracts for those looking for natural alternatives to pharmaceuticals and other products that centered around health supplements. In the intervening years, the rise of organic giants like Whole Foods and the death of carbs in nearly every diet have proven GNC knew where consumer tastes were headed.
But that flood of competition plus cheaper prices on the web has, frankly, made it difficult to understand why folks would seek out a GNC at all. The company managed to convince investors it had a bright future after its flashy 2011 IPO, but profits have steadily decayed since 2013 — as has GNC’s share price, which has plummeted from $60 to a mere $4 a share in about five years.
The competitive pressures have resulted in sales peaking back in 2015, and another 5% decline in the top line is predicted for this fiscal year.
The company is admittedly profitable and the health-supplements business is huge enough that GNC doesn’t have to be dominant to survive. However, a bricks-and-mortar vitamins merchant is simply not in step with modern marketplace trends in retail — and eventually, the bill will come due.
Container Store Group TCS, -0.78% certainly isn’t as bad as some of the names on this list. In fact, the stock has been riding high lately; its share price has have doubled since Jan. 1 thanks to a strong earnings report in August and improved guidance that prompted a short squeeze.
However, this is hardly part of a sustained trend. Shares are down over 75% from their 2014 highs even after this surge.
And honestly, why should investors expect a rally? Not only are there copious online options for storage products but category leaders Bed Bath & Beyond Inc. BBBY, +1.22% and Home Depot HD, +1.03% have moved into organizational gear in earnest. So even if you want to go to a bricks-and-mortar store, there’s fierce competition.
August’s pop is nice, but we’ve seen this movie before; Container Store has shrunk its way to short-term success but that is not a long-term plan for relevance. The good news is that its Elfa shelving unit may provide a lifeline for future sales in the home organizing space. But last fiscal year, Elfa third-party sales outside Container Store locations tallied just under $70 million — a meager 8% of its $857 million in total net sales.
That’s not encouraging of things to come if and when The Container Store is forced to cut some of its 90 locations.
Barnes & Noble
To be fair, the death of Barnes & Noble BKS, +1.01% has been anticipated for years. But while it’s tough to say precisely when this bookstore will go belly up, the end result is pretty much inevitable.
With operations consistently in the red and ugly sales trends adding to the pain — including a 5.1% revenue decline in its most recent quarter — it’s difficult to see a way out simply because of the math.
There are admittedly a few locations that seem to be doing fine, and outlasting rival Borders has allowed Barnes and Noble the ignominious distinction of being the last book chain standing before the might of Amazon. But after briefly touching $19 in 2015, shares are back under $7 apiece.
The company isn’t crippled by debt, with long-term obligations tallying just under $160 million compared with a market value of almost $500 billion and annual revenue north of $3.5 billion. But it’s hard to argue that Barnes & Noble is safe in the long term, or that it will ever return to dominance in the marketplace.
Abercrombie & Fitch
At the start of this year, it looked like Abercrombie & Fitch ANF, -0.85% was back on track. Shares began trending up in late 2017 and then kicked into high gear after fourth-quarter earnings; the stock jumped 7% immediately after its March report thanks to a big beat and better-than-expected same-store sales.
However, things have been far less rosy lately. Shares are down about 30% from recent highs because its most recent earnings, released at the end of August, showed decent profits but continued trouble on the top line. Worse, shares are less than half of where they were in 2014 and down more than 70% from 2011 highs.
That’s not entirely surprising since Abercrombie’s retail presence has been retreating as steadily as its share price. The company boasted just 870 stores as of the second quarter of this year, down from 1,069 at the beginning of 2011. About 40 locations were closed in 2017, and there were hints this spring that as many as 60 more could be shuttered this year.
On one hand, investors may find it admirable that Abercrombie has found a way to fight tooth and nail to keep revenue reasonably flat year after year. But there’s little room for error if Americans tighten their purse strings or if consumer tastes shift even modestly away from the brand.
Like Sears, a department store on the brink that investors have been cringing as they watch lately is Bon-Ton Stores BONTQ, -5.52% The company has failed to make a profit since 2010, filed for bankruptcy protection earlier this year and has been relegated to the pink sheets with a stock price that’s less than a dime.
Absurdly, however, there’s already rumblings of a so-called “comeback” for this embattled retailer. A USA Today report several weeks ago posed the notion of “a sleeker, more e-commerce focused business.” But doesn’t that sound awfully familiar to every corporate restructuring and doomed turnaround plan in the entire sector?
Don’t be fooled by a multi-billion top line for this almost-penny stock. Even if the store count of Bon-Ton is hacked well below the 260 it had at the time of its bankruptcy filing, the future is far from bright.