By Anthony Mirhaydari
It's no secret that the U.S. consumer has been under some pressure lately. Consumer price inflation increased to a 2% annual rate in April as food prices pinch pocketbooks. Wages remain largely stagnant. Despite weak retail sales, credit-card debt is on the rise, while the savings rate is falling — suggesting households are having a tough time hitting their monthly budgets.
As a result, retail stocks have been badly lagging the overall market year to date, with the Retail SPDR /zigman2/quotes/206947004/composite XRT +2.64% down 6% from its late-December high. While the S&P 500 has pushed to record highs over the last few days, the XRT remains mired in a tight, two-month sideways channel. On Wednesday, the XRT dropped back below its 200-day moving average in a possible indication that another downdraft is getting underway.
It hasn't helped that companies in the sector have been reporting disappointing quarterly earnings results and forward guidance over the past week.
Within the sector, some stocks are suffering more than others. Here are five retailer stocks to avoid.
American Eagle Outfitters /zigman2/quotes/209429711/composite AEO +2.05%
AEO has been in wipeout mode since late 2012 — down roughly 50% from its high — as the teen retail struggles for direction. The company reported disappointing same-store sales and weak forward guidance on May 21 and has been under pressure since then. Strategically, the company is something of a hot mess, with a focus on cost cutting and store closures instead of generating excitement via growth.
Aeropostale
ARO has been in turnaround mode, struggling to remain in business, secure liquidity and shore up its balance sheet. The stock has collapsed nearly 90% from its 2010 highs and has been forced to secure a $150 million funding deal from Sycamore Partners in exchange for two board seats. The good news is that the deal will bring back Julian Geiger, former CEO of the company.
But any turnaround will be tough as losses mount and execution risks grow. Shares are breaking down out of a two-month consolidation range on Wednesday with an intraday drop of nearly 5%.
Abercrombie & Fitch /zigman2/quotes/206677024/composite ANF +3.74%
ANF is due to report quarterly results on Thursday before the open. Unlike the last two quarters, the company has not updated guidance ahead of earnings. That suggests analyst expectations of an 18 cent loss on a near 5% drop in sales is probably on target. Same-store sales are estimated to have fallen 6%.
Like AEO, ANF is struggling for direction, as expensive cotton hoodies and khakis aren't the hot sellers they once were. The company has been the subject of some M&A chatter, but nothing definitive.
Express /zigman2/quotes/210459169/composite EXPR -1.46%
Like Abercrombie, Express will report quarterly results on Thursday. First-quarter results were poor, with a miss on earnings and downbeat forward guidance with traffic down, promotional activity high (markdowns), and same-store sales under pressure. Management is looking for a bounce back in the latter part of 2014 to save full-year results, but recent trends in the overall economy suggest that might not be forthcoming.
TJX /zigman2/quotes/203136811/composite TJX +1.89%
Shares of TJX have had a tough month, dropping hard out of a multi-month consolidation range two weeks ago to push below early February lows. Shares are now down more than 15% from their January highs as investors sour on the company after it reported its first quarterly earnings miss in five years.
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TJX
