The holidays, a much-needed boost in sales for retailers, are just around the corner. A growing number of retailers, however, continue to report shrinking traffic and disappointing sales—no matter whether it’s Gucci or Red Wing.
Voss Capital is betting on a housing market boom
The Voss Value Fund was up 4.09% net for the second quarter, while the Voss Value Offshore Fund was up 3.93%. The Russell 2000 returned 25.42%, the Russell 2000 Value returned 18.24%, and the S&P 500 gained 20.54%. In July, the funds did much better with a return of 15.25% for the Voss Value Fund Read More
This is what the growth of retail sales looks like for the last three months: August 0.0%, September 0.0%, October 0.1%—far below the +0.3% Wall Street was expecting.
The retail landscape is getting muddier in a matter of weeks. And recent reports make it crystal clear to me that the Grinch is definitely going to steal Christmas for retailers.
More Retailers Report Shrinking Profits
Walmart, Macy’s, and Nordstrom are the three high-profile retailers to disappoint Wall Street, but they have lots of company.
Shoe retailer DSW, Inc. lowered its full-year earnings forecast from $1.80 – $1.90 per share to $1.40 – $1.50 per share. The problem? Slow customer traffic.
The Gap reported that its October same-store sales dropped by 15% at Banana Republic and by 4% at Gap stores. Additionally, the company warned that it would miss Q3 expectations.
Urban Outfitters reported Q3 sales of $825.3 million, well below the Wall Street pipe dream of $868.9 million. Urban Outfitters’ shares closed down 7.4% to a four-year low after spitting up that revenue hairball.
Imports Are Going Down
The biggest confirmation of the retailing woes came from the Port of Long Beach, the second-busiest US port.
The Port of Long Beach handled 307,995 containers in October, down from 310,482 and 0.8% less from the same month last year. More troublesome is the 14% plunge in imported containers since August.
That tells me retailers are cutting back their pre-Christmas orders in anticipation of disappointing holiday sales and due to already bulging inventories.
Stay Away from Retail Stocks
I want to point out two retailers with ballooning inventories that I think are profit time bombs just waiting to kill investors.
- Lululemon Athletica (LULU): Yoga-pants maker Lululemon has been suffering from an inventory bulge. Inventory hit $280 million, a 55% year-over-year increase.
- Under Armour (UA): Inventory ballooned to $867 million at the end of Q3, a 36% increase.
I’m not suggesting that you rush out, sell all your retail stocks, or short Lululemon and Under Armour tomorrow morning.
As always, timing is everything. However, it’s clear that retail stocks are one of the worst places to invest your money at this moment.
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The article, “Retail Stocks Are Probably the Worst Place to Invest Your Money Now”, was originally published at Mauldin Economics.
Read the original article on Connecting the Dots. Copyright 2015.