3 Lagging Consumer Discretionary Stocks to Kick to the Curb
It’s been a tough road for consumer discretionary stocks since the pandemic ended. Sky high inflation, rising interest rates and economic worries have led consumers to tighten their purse strings. At the same time, discretionary dollars have flowed more towards travel and experiences and away from spending on goods and products. The result is that spending on non-essential items has declined as consumers prioritize groceries, gasoline and paying the rent. Now is the time for investors to examine their portfolios and make sure they are not holding onto lagging consumer discretionary stocks.
The situation regarding consumer discretionary spending items is likely to get worse before it gets better. Analysts are doubtful that American consumer spending will hold up over the remainder of 2024. Data from Bloomberg Intelligence shows that sell side analysts have trimmed their profit projections for the S&P 500 consumer discretionary sector through the third quarter of this year. As such, consumer discretionary stocks are expected to continue trailing the market, with some stocks likely to perform worse than others. Here are three lagging consumer discretionary stocks to kick to the curb.
GameStop (GME)
Things at video game retailer GameStop (NYSE:GME) continue to go from bad to worse. GME stock just plunged 15% after the company reported yet another weak quarter of financial results. For the final three months of 2023, which included year-end holiday sales, GameStop announced earnings of 22 cents a share on revenue of $1.79 billion. Wall Street had expected earnings of 30 cents per share and sales of $2.05 billion.
The company said that its hardware sales, including video game consoles and discs, fell 12% year-over-year (YOY) to $1.09 billion, while its software sales declined 31% from a year earlier to $465 million. GameStop’s sales have steadily decreased as consumers purchase digital game downloads and sales of physical console games deteriorate. As has become customary, GameStop did not provide any forward guidance for the year ahead.
However, the company did say that its board of directors has approved a new strategy that will allow CEO Ryan Cohen to invest the company’s excess cash in stocks and other securities such as cryptocurrencies. GME stock is down 45% in the last 12 months.
Unilever (UL)
Shares of consumer goods company Unilever (NYSE:UL) have largely traded sideways over the past five years. Since 2019, UL stock has slid 13% lower, including a 3.5% drop over the past 12 months. Management is now trying to do something about the underperformance by breaking the company into pieces and spinning off its popular ice cream unit that makes the well known brands Ben & Jerry’s and Magnum.
Going forward, Unilever will restructure into four business units: beauty and wellbeing, personal care, home care and nutrition. The company said that the separation of its ice cream division will enable it to eliminate 7,500 jobs and save money. The restructuring is expected to be completed by the end of 2025 and deliver annual cost savings of about $850 million.
Some analysts are questioning the decision to spin-off the ice cream division, given its contributions. In 2023, Unilever’s ice cream unit generated sales of $8.57 billion and accounted for 13% of the company’s total revenue. So far, news of the break-up and ice cream spin-off have done little to move the needle on this consumer discretionary stock.
Nike (NKE)
The demise of sneaker giant Nike (NYSE:NKE) has been difficult to watch. NKE stock continues to lag the market badly. In the past 12 months, the company’s share price has declined 21% while the benchmark S&P 500 index has risen to an all-time high. Nike continues to struggle with a slowdown in its international markets, particularly China where the country is experiencing an economic downturn.
With its most recent earnings report, Nike once again beat Wall Street forecasts. However, while the company’s North American sales grew 3% YOY, sales in the rest of Nike’s regions missed targets. In China, sales increased 5% on an annualized basis, but growth has decelerated as that country’s economy struggles. In terms of guidance, Nike said it expects its revenue to grow only about 1% this fiscal year.
The athletic apparel company has announced plans to reduce its costs by $2 billion over three years and cut 2% of its global workforce, or about 1,500 jobs. However, those moves haven’t been enough to help NKE stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
