5 Retail Stocks to Put on Your 2023 Death Watch
Retailing is fine. Retailers are not.
You can see it in malls, in strip malls, in downtowns large and small, even in mixed-use blocks. Empty space. As retail market share goes to online giants like Amazon (NASDAQ:AMZN) or offline giants like Walmart (NYSE:WMT), fewer and fewer traditional chains can compete.
Already in 2023, Bed Bath & Beyond (NASDAQ:BBBY) and Party City (NYSE:PRTY) are considering bankruptcy filings. They are far from alone. Now, dozens of other retailers — many of them publicly traded — are selling at prices indicating that liquidation, or at least reorganization, may be near.
They stand to join a long list now in the hands of what I call “junkmen.” That’s not a pejorative. Someone has to extract the final value of a brand. That in itself has become an industry, with hedge funds and landlords taking brands online, selling inventory and strategically closing stores.
Retail Ecommerce Ventures now runs brands like Stein Mart, Pier One and Tuesday Morning. Simon Property Group (NYSE:SPG), the largest mall owner, now runs Forever 21, Lucky Brand and plenty of others alongside Authentic Brands. Similarly, Sycamore Partners now owns Lane Bryant, Staples and Ann Taylor, among others.
For every success like Lululemon (NASDAQ:LULU), there are now a dozen failures as the commercial real estate market gets hollowed out. Bakeries, exercise studios, food vendors and hair salons now dominate Main Street — and many are barely hanging on.
In 2023, buying any retailer stock entails more risk than ever before. But at current valuations, the gain you could get from betting on survival is also bigger than ever. If you buy any of the following and they do turn around, you will have a tidy profit. Ultimately, though, these are retail stocks to sell.
Retail Stocks to Sell: Stitch Fix (SFIX)
Not all of today’s troubled retail stocks to sell have to do with malls. Based online, Stitch Fix (NASDAQ:SFIX) is looking at a potential bankruptcy despite pioneering one of the last decade’s greatest online trends: the subscription box.
The business model here is to replace a personal shopper with online shopping. Customers send their measurements, needs and wants to Stitch Fix. Each month, the company then curates a selection of clothes. Busy customers keep what they like and send back what they don’t.
The pandemic put a crimp in Stitch Fix’ style because people were no longer dressing for work. The lifting of restrictions hasn’t turned things around, either. The company is now valued at just around $500 million on 2022 sales of about $2 billion. CEO Elizabeth Spaulding is out as founder Katrina Lake tries to save the company she started in 2011.
About 20% of Stitch Fix’s full-time staff are being let go, following a restructuring last year that cut 15% of the workforce and cost $18.7 million. The new layoffs will cost between $15 million and $20 million.
There is a market for what Stitch Fix does. It had 4.1 million members in late 2021. But that’s now falling, coming to 3.7 million in the most recent quarter. Nordstrom (NYSE:JWN) has shuttered its rival service, Trunk Club.
Inflation is a problem. So is churn, with customers dropping the service as the novelty wears off. SFIX stock is now down more than 90% from its highs.
It is possible that Katrina Lake is the turnaround architect that Stitch Fix needs. She is still just 40 and owns roughly 10% of the common stock. It would be great if she succeeds. But that’s not the way to bet.
iMedia Brands (IMBI)
If you’ve never seen an iMedia Brands (NASDAQ:IMBI) store, that’s because they don’t exist. The company is a TV-based shop-at-home service. It runs its own cable shopping channels, two consumer brands and an ad network.
You may think a company like this could not possibly get into financial trouble in 2023, but you’d be wrong. Shares are down more than 85% in the last one year. IMBI stock hasn’t traded at over $1 since September and has already received a delisting notice.
Currently, IMBI has a market capitalization of roughly $20 million on 2022 sales of around $600 million. For the third quarter, the company lost $21.3 million, or 72 cents per share, on revenue of $123 million.
The company did get a boost in December by selling one of its headquarters and two warehouses for $48 million, then leasing them back. This was done to cut debt.
Macro Axis now rates the possibility of a bankruptcy filing for IMBI at 44%. With rival Qurate Retail (NASDAQ:QRTEA) down 75% in the last year, it’s hard to see where a comeback will come from.
Retail Stocks to Sell: Rite Aid (RAD)
Rite Aid (NYSE:RAD), once the third-largest pharmacy in the United States, was in trouble even before selling half its stores to Walgreens Boots Alliance (NASDAQ:WBA) in 2018.
Rite Aid hasn’t posted positive earnings since. The company is now the fifth-largest retail pharmacy chain, having been surpassed by Kroger (NYSE:KR) and Walmart. It’s also smaller than the pharmacy benefit managers of Cigna (NYSE:CI) and UnitedHealth (NYSE:UNH).
Rite Aid now expects to lose $584 million for fiscal 2023 on revenue of $24 billion. It has dumped CEO Heyward Donigan and is searching for a replacement.
But who would want to go there? The chain closed 145 stores last year and will close more this year. Donigan’s last strategic move was to serve “pharmacy deserts” with shops a fraction of the traditional size. Rite Aid’s bonds are rated CCC — and that’s an upgrade. At the end of November, the company had just $103 million in cash and over $5.6 billion in long-term debt.
The Walgreens deal left Rite Aid as essentially two chains, one in the Northeast and one on the West Coast. It’s untenable and unprofitable.
With RAD stock, speculators have been buying calls, attracted by a market cap of under $200 million, valuable real estate and the chance of a quick disposal that sale regulators will have to approve.
Carvana (CVNA)
Carvana (NASDAQ:CVNA), the online car retailer known for storing inventory in giant “vending machines” alongside major highways, was a pandemic star.
Carvana tried to be “the Amazon of used cars,” transacting business online and delivering cars directly to customers. It sold car loans for more profit. But as the world began reopening and interest rates rose, the business model crashed.
In late 2022, Yahoo! Finance named Carvana “the worst company of the year.” CVNA stock is down more than 95% in the past 12 months. The market cap is now $1.2 billion on about $14 billion in sales.
The used-car market has problems. Prices are falling and the costs to maintain inventory keep rising. But traditional car lots can handle it. AutoNation (NYSE:AN) is worth just what it was a year ago. Carvana itself emerged out of a standard dealer controlled by the father of Carvana CEO Ernie Garcia III. The elder Garcia sold out of Carvana at the top and is now worth billions. A dual-share structure leaves the Garcias with 84% of the voting stock.
Carvana’s biggest creditors have now signed a cooperation agreement covering $4 billion in Carvana debt. Speculators have also been buying CVNA stock lately, possibly seeing a chance to squeeze both Garcias on behalf of creditors. But this is a game for big players who can wait out their opponents. Small investors should stay away.
Retail Stocks to Sell: Express (EXPR)
Express (NASDAQ:EXPR) is probably exactly the kind of retailer you’d expect to find on a list of retail stocks to sell.
Express sells clothes aimed at young men and women. Its locations are in traditional shopping malls. The company has been shrinking for years. In fact, one of its stores was called a “ghost town” in January 2020, well before the pandemic.
Things haven’t gotten better. Express stayed with fashion aimed at young people after the economy began reopening and remained in malls even as their conditions deteriorated.
Of course, things did look to be improving for EXPR stock in early 2021. But it has been all downhill since. Shares are down more than 65% in the last year, trading for around $1. Express’ market cap is just above $70 million on annual sales of nearly $2 billion.
For Express, losses have been accelerating as consumers continue to focus on price ahead of fashion. For Q3, Express lost $34.4 million, or 50 cents per share. Total sales were down 8% while online sales were down 17%.
The company can’t sustain these kinds of losses for much longer. Express had just $25 million in cash at the end of October against $668 million in long-term debt. Suppliers who ship goods to stores and expect to be paid for them 90 days later get frightened by these kinds of numbers.
As with other troubled retailers, speculators have been buying EXPR stock lately, hoping lenders can make enough from the mess to leave them with a profit.
Remember what we said about “junkmen?” Sycamore Partners made a run at Express in 2014 but failed. It then led a $140 million financing round in 2021 and now lists Express among its investments. Expect to hear from Sycamore again before this saga is over.
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On the date of publication, Dana Blankenhorn held a long positions in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
