Back to top

Image: Bigstock

4 Retail Stocks to Avoid Now Post Dismal Earnings

Read MoreHide Full Article

With the first-quarter earnings season now effectively behind us, the retail sector is the only one still hogging the limelight, as a few stocks are lined up to report their financials. The conclusion derived from recent reports of retailers is that this sector’s performance has been disappointing to an extent, with a variety of traditional brick-and-mortar operators reporting lower-than-expected results, in spite of already low estimates.

The initial assumptions that the improved household buying power, as a result of energy savings, would reflect in the retail sector’s results, failed to translate much into reality. This was due to the shift in spending trends to online shopping, along with the competitive retail environment. For more details on earnings of this sector and others, please read our ‘Earnings Trends’ report.

With respect to the retail stocks’ Q1 scorecard, we now have results from 94.6% of the sector’s total market capitalization in the S&P 500, wherein total earnings grew 2.4% from the year-ago period and revenues increased 5.4%. While 68.4% companies beat earnings estimates, 50% have surpassed revenue expectations.

Notably, a sizeable chunk of these companies delivered better-than-expected results, probably because estimates for this quarter were already reduced to easy-to-beat levels, owing to the global macroeconomic concerns. The decent-looking picture, however, is also a reflection of strong results at Amazon.com, Inc. (AMZN - Free Report) . Once we exclude Amazon from the retail sector results, the comparisons start looking unfavorable.

Thus, as we gear up to enter another earnings season, it is time again to reshuffle your portfolio, and get rid of stocks that may hurt your returns. Here we have highlighted four Retail-Wholesale stocks that posted a negative earnings surprise in the last concluded quarter. These stocks are also witnessing downward revisions in estimates and carry a Zacks Rank #5 (Strong Sell). Falling estimates clearly indicate that analysts remained skeptical about these stocks’ future performance.

4 Retail Stocks to Avoid Now

Beware of Kohl’s Corporation (KSS - Free Report) that delivered lower-than-expected first-quarter fiscal 2016 results. The company’s quarterly earnings of 31 cents per share missed the Zacks Consensus Estimate by 13.9% and also plunged a significant 50% from the prior-year quarter. Further, net sales of $3.972 billion lagged the Zacks Consensus Estimate of $4.124 billion and fell 3.7%.

This operator of department stores has underperformed the Zacks Consensus Estimate by an average of 2.4% over the trailing four quarters. Following the dismal performance, the Zacks Consensus Estimate of $3.91 and $4.11 for fiscal 2016 and fiscal 2017 has dropped 21 cents and 29 cents, respectively, over the past 30 days.

Don’t let your portfolio fall prey to Dillard's Inc. (DDS - Free Report) . The company’s first-quarter fiscal 2016 earnings of $2.17 per share lagged the Zacks Consensus Estimate of $2.57 and plunged 18.4% on a year-over-year basis. Dillard's total revenue (including service charges and other income) of $1,538.8 million slipped 4.6% from the year-ago quarter.

This fashion apparel, cosmetics, and home furnishing retailer has underperformed the Zacks Consensus Estimate by an average of 8.8% over the trailing four quarters. Following the miserable performance, the Zacks Consensus Estimate of $5.79 and $5.64 for fiscal 2016 and fiscal 2017 has declined $1.20 and $1.81, respectively, over the past 30 days.

Another stock that you should forget for now is Citi Trends, Inc. (CTRN - Free Report) . The company’s first-quarter fiscal 2016 adjusted earnings of 61 cents per share trailed both the Zacks Consensus Estimate and the year-ago figure of 74 cents by 17.6%. Further, sales dipped 0.6% year over year to $193.7 million and fell short of the Zacks Consensus Estimate of $197 million.

This value-priced retailer of urban fashion apparel and accessories has underperformed the Zacks Consensus Estimate by an average of 5.7% over the trailing four quarters. Following the drab results, the Zacks Consensus Estimate of 92 cents and $1.29 for fiscal 2016 and fiscal 2017 has decreased 27 cents and 2 cents, respectively, over the past 30 days.

Last but not the least is Nordstrom Inc. (JWN - Free Report) , which does not deserve a place in your list of stocks. The company continued its dismal run as it reported first-quarter fiscal 2016 results, wherein both top and bottom lines lagged estimates for the third straight quarter. Nordstrom’s quarterly earnings of 26 cents per share came in way below the Zacks Consensus Estimate of 45 cents and slumped 60.6% from the prior-year quarter figure of 66 cents. Total revenue rose 2.5% to $3,249 million but fell short of the Zacks Consensus Estimate of $3,293 million.

Following a disappointing quarter, Nordstrom now expects net sales to increase nearly 2.5%−4.5% in fiscal 2016 compared with 3.5–5.5% growth guided earlier. Management now envisions fiscal 2016 earnings in the range of $2.50–$2.70 per share, down from $3.10–$3.35 projected earlier.

This fashion specialty retailer has underperformed the Zacks Consensus Estimate by an average of 15.7% over the trailing four quarters. Following the poor show, the Zacks Consensus Estimate of $2.55 and $2.91 for fiscal 2016 and fiscal 2017 has tumbled 63 cents and 60 cents, respectively, over the past 30 days.

Bottom Line

In our school days, we had read an idiom, “A stitch in time saves nine”, meaning that timely action may prevent serious loss later on. So, you can apply the same principle to your portfolio. Exiting the underperforming stock at the right time helps maximize your portfolio’s return. For the time being, you can shift your focus to better-ranked retail stocks.

Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 (Strong Buy) or #2 (Buy), which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in