Whenever there is any hiccup in the economy, consumers tighten their spending on non-critical items. That means that curtailing entertainment spending, dining out, and buying new clothing and apparel become targeted as ways consumers can save money without a serious disruption to their lives.
The media loves to scare the public about the next recession, and one ultimately will come, even if it is not as soon as some might worry about. The problem today is that retailers with their own branded clothing or with a set of common providers have been absolutely crushed during May and over a longer period. The one common theme among these retail players is that they all have apparel as their primary focus. The companies seem to be in a fight for relevance, if you only looked at their stocks, and while some companies are facing deep existential threats, there are some that have grown earnings and revenues and that are expected to keep growing. That sets a disturbing pattern for investors trying to figure out where is and is not safe to invest in retail.
24/7 Wall St. ran a screen of the top apparel retailers with performance over the past month using a Finviz screen. We aren’t even in a recession yet, and the performance drops that have been seen should make any investor wonder how bad these companies will see their shares fall when even the likes of Amazon and discount retailers are complaining about weak consumer metrics.
The overall economy does not have to be in a recession for many retailers to feel like they are in their own recession. After all, selling fashion, clothing and accessories to the public is subject to high seasonal issues and subject to weather, and there are generally three annual periods when the retailers have to get their merchandising right each and every time.
American Eagle Outfitters Inc. (NYSE: AEO) has its retail stores in major metropolitan areas, and its shares were last seen trading down about 27% over the past month. Its market cap was down to about $3 billion, and being valued at less than 10 times forward earnings is not enough to matter, despite an expected mid-single-digit sales growth and roughly 10% earnings per share growth expected to continue.
Abercrombie & Fitch Co. (NYSE: ANF) disappointed on its last earnings report with poor guidance, and it even announced it would close some flagship stores. Its stock was down over 40% in the past month, after a drop of about 29% over the past week. This is a turnaround candidate that just doesn’t seem to be able to hold on to a turnaround. Abercrombie has a market cap of close to $1.14 billion.
Express Inc. (NYSE: EXPR) is expected to have a loss for 2019, and that loss is expected to narrow in 2020, but with flat to slightly lower sales. The stock was down just about 20% in the past month and down 7% in the past week, and it lost two-thirds of its value from this time a year ago. Express sells apparel and accessories targeted to women and men mostly in the 20- to 30-year-old range. Its market cap is now just $205 million.
Francesca’s Holdings Corp. (NASDAQ: FRAN) is a women’s retailer that seems to be in a death spiral. It is now a penny stock that unlikely will keep a primary index listing without a reverse split, and its sales keep sliding. While shares were down about 27% in the past month, they are down over 90% from a year ago. As of February 2, 2019, the company operated approximately 727 boutiques, but it is now exploring strategic alternatives and announced senior leadership changes in recent months. With well over $400 million in last year’s sales, how confident does the market seem with a mere $17 million market cap?
Guess Inc. (NYSE: GES) sells at its own stores, plus other stores have carried the brand. Its shares were down over 21% in the past month and down about 33% over the past year. Guess has a $1.1 billion market cap, and its sales and earnings are expected to rise again in 2019 and 2020. As of February 2, 2019, Guess operated 1,161 retail stores in the Americas, Europe, and Asia, and its licensees and distributors operated an additional 558 retail stores globally.