Retail Stocks Are Probably The Worst Place To Invest Your Money Now

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Retail Stocks Are Probably The Worst Place To Invest Your Money Now
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Retail Stocks Are Probably the Worst Place to Invest Your Money Now by Tony Sagami

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.

This Tiger grand-cub was flat during Q2 but is ready for the return of volatility

Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge 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.

Retail Stocks

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.

Mauldin-Economics Retail Stocks

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.

Mauldin-Economics Retail Stocks

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.

Mauldin-Economics Retail Stocks

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.

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