Risky Retail: 3 Stocks Investors Should Avoid in 2024
All in all, it’s certainly not a horrible time to be a brick-and-mortar retailer in the United States. That’s because the labor market remains strong, while consumers appear to be ready to spend more of their money on goods, interest rates are falling and the wages of retail employees are no longer zooming higher. However, we are still in the e-commerce era, when e-commerce is taking market share from brick-and-mortar names. Therefore, after Bed, Bath and Beyond and Rite Aid (OTC:RADCQ) went bankrupt last year, a significant number of other brick-and-mortar retailers are likely to struggle mightily in 2024. This makes them stocks investors should avoid.
Moreover, with Amazon continuing to increase its share of the e-commerce sector, some small e-commerce retailers could be in trouble in 2024 as well. With that said, here are three very risky retail stocks to avoid.
GameStop (GME)
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The most famous meme stock, GameStop (NYSE:GME) has largely given up on e-commerce, while its main business, which involves selling video-game discs, is constantly shrinking due to the constantly increasing popularity of downloading video games. As a result, the company has become increasingly reliant on selling low-margin, commoditized items such as “collectibles and toys.”
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Under its current CEO, Ryan Cohen, GME has also prioritized cost cutting, and last month, the firm announced that its board had decided that it can invest in other stocks going forward. However, after several quarters of cost cutting, the company probably can’t lower its spending much more. Moreover, after Cohen invested a great deal of his own money in Bed, Bath and Beyond before it went bankrupt, I wouldn’t be too optimistic about GME’s stock portfolio.
Also noteworthy is that GME’s top line sank 9% last quarter versus the same period a year earlier, while its price/book ratio of 4.24 is quite elevated given its poor outlook.
Big Lots (BIG)
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Big Lots (NYSE:BIG) sells discount home goods and furniture. The retailer has a great deal of competition in both of those areas, as it’s facing off against powerhouses like TJX’s (NYSE:TJX) HomeGoods and Marshalls stores and Wayfair (NYSE:W), the rapidly growing e-commerce furniture retailer. Of course, giants like Walmart (NYSE:WMT), Target (NYSE:TGT), and Costco (NYSE:COST) also sell discounted home goods.
BIG has also undoubtedly hurt by the large downturn in the number of homes sold in the last year due to the Federal Reserve’s interest rate hikes. Indeed, in the 12 months that ended in October 2023, its top line came in at $4.8 billion, well below the $5.66 billion of revenue that it generated in the 12 months that ended in October 2022.
While I do expect the volume of homes sold to meaningfully increase by the second half if 2024 as rates fall, the turnaround may be a textbook case of “too little, too late” to prevent BIG stock from having to deal with major cash-flow issues.
That’s because, as of the end of Q3, the firm had a huge debt load of $2.45 billion, while it had only $46.6 million of cash and a staggering debt/equity ratio of 783%.
Moreover, analysts on average predict that its per-share loss for 2024 will come in at a rather large $11.18.
Stitch Fix (SFIX)
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Stitch Fix (NASDAQ:SFIX) is an e-commerce player, but it is struggling and looks poised to continue doing so for the foreseeable future.
SFIX offers a subscription service that allow consumers to order clothes online and return them if the products don;t meet their expectations.
Many retail investors and pundits had high hopes for SFIX several years ago, enabling the shares to surge to jump to $49 in September 2018 before reaching $96 in January 2021. Now SFIX stock is changing hands for around $3.60.
However, ominously for the firm, its subscriber base has tumbled in recent quarters and its average revenue per user dropped significantly last year, causing its top line to sink. Indeed, in the company’s fiscal 2023, its sales tumbled 21%.
Thanks to cost cutting, SFIX’s net loss dropped to $172 million last year from $207 million in FY22. However its EBITDA dropped to -$19.5 million from $16.8 million.
And in the firm’s fiscal Q1 that ended in October, its revenue tumbled 18% year-over-year, while its subscriber base fell 15% year-over-year and its net loss from continuing operations came in at $26.17 million.
While the latter figure was much better than the loss of $48 million that it reported for the same period a year earlier, it’s difficult to see how the company can stop bleeding red ink as long as its subscriber base and revenue are consistently dropping meaningfully. Please heed our warning with these stocks investors should avoid, and save your portfolio.
On the date of publication, Larry Ramer 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
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