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

Retail Stocks Are Probably The Worst Place To Invest Your Money Now
3112014 / Pixabay

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.

What Value Investors Can Learn From Walter Schloss And Ben Graham Today

Walter Schloss isn’t a name many investors will have heard today. Schloss was one of the great value investors who trained under Benjamin Graham and specialized in finding cheap stocks. His track record was outstanding. In Warren Buffett’s 1984 essay, the Super Investors of Graham-and-Doddsville, he noted that between 1956 and 1984, Schloss’s firm returned 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.

Subscribe to Connecting the Dots

Markets rise or fall each day, but when reporting the reasons, the financial media rarely provides investors with a complete picture. Tony Sagami shows you the real story behind the week’s market news in his free publication, Connecting the Dots.

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.

No posts to display