With the bankruptcy of the embattled enterprise Bed Bath & Beyond (NASDAQ:BBBY), it’s time to discuss the worst retail stocks to sell. Understandably, bearish discussions don’t go over so well in this era of toxic positivity. However, I look at this framework as being realistic. Investing is somewhat like baseball in that you can’t expect to bat 1,000 all the time.
As well, when you’re a manager of a team, you must make difficult decisions. Some enterprises just might not be able to recover; hence they belong in the category of retail stocks to avoid. Again, nobody wants to be the jerk to cut a player from the roster. However, the best teams that win championships are willing to make these tough calls.
Finally, you’ve got to think about number one. Believe me, the executives of the corporations whose honor you want to defend already got their reward. So, don’t feel too bad about wanting to avoid the fallout of a potential retail stocks crash.
As a name-brand fashion apparel retailer, Gap (NYSE:GPS) faces a significant fundamental tailwind. According to several market observers, members of Generation Z don’t really focus on fashion to be trendy or to denote status. Unfortunately, that’s a big problem for Gap because if the company lost its brand appeal, other discount apparel companies can eat its lunch.
Recently, Gap announced that it will eliminate hundreds of corporate jobs to align with a broader restructuring effort. However, I’m not entirely sure that Gap can cut its way to prosperity. Again, the emerging generation doesn’t care about labels that older cohorts once did.
In addition, Gap’s financials don’t provide much confidence. Presently, its equity-to-asset ratio sits at 0.2, ranked worse than 83.18% of cyclical retailers. Also, its three-year revenue growth rate is 0.6% below parity, which ranks worse than over 60% of the competition. Finally, Wall Street analysts peg GPS as a consensus moderate sell. With that, it probably ranks as one of the worst retail stocks to sell.
Retail Stocks to Sell: ContextLogic (WISH)
A white clock indicates it's time to sell.
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Once a stronghold for meme-stock traders, the e-commerce platform ContextLogic (NASDAQ:WISH) may be on its last legs. Carrying a market capitalization of only $150 million, WISH represents one of the retail stocks to avoid in part because of its awful chart performance. Since the beginning of this year, WISH cratered 51% of equity value. In the past 365 days, it fell more than 86%. I’m not sure if there’s any coming back from that.
To be fair, ContextLogic enjoys some redeeming statistics. For one thing, its cash-to-debt ratio pings at 55.31, ranked better than 93.23% of companies listed in the cyclical retail segment. Also, it’s deeply undervalued on paper. For example, WISH trades at 0.35-times tangible book value, “better” than 93.11% of its peers.
Still, the concept of value trap makes me think WISH is really one of the retail stocks to sell. Its three-year revenue growth rate sits at 36.7% below zero. Also, its profit margins also fell into negative territory. Lastly, the consensus assessment for WISH is a hold, with two out of four analysts saying it’s a sell.
Retail Stocks to Sell: Joann (JOAN)
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An online marketplace for various household goods, Joann (NASDAQ:JOAN) gives off a wholesome arts and crafts vibe. Personally, I wish them well. At the same time, investors must be realistic. Technically, JOAN rates among the retail stocks to sell because it’s just not getting it done in the charts. Since the Jan. opener, shares plunged 43%. In the trailing one-year period, they gave up nearly 84% of equity value. Frankly, it’s going to scare anyone who isn’t a meme trader.
Fundamentally, JOAN sadly makes a case for retail stocks bankruptcy. First, its cash-to-debt ratio sits at 0.01 times, worse than 98.17% of the cyclical retail industry. Second, its Altman Z-Score is 0.65, indicating distress and higher-than-average bankruptcy risk.
If that wasn’t bad enough, its three-year revenue growth rate pings at 0.6% below zero. On the profitability side, both operating and net margins print red ink. I wish I had better news to bring but I don’t. Right now, analysts peg JOAN as a hold: three holds, one sell, and most damningly, no buys. Thus, it’s one of the worst retail stocks.
Digital Brands Group (DBGI)
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According to its website, Digital Brands Group (NASDAQ:DBGI) builds impactful relationships between brands and consumers. Further, it’s a portfolio group that provides unique scaling. It has operational expertise, solves logistical challenges, and expands addressable markets through its e-commerce and retail platforms. Make of that what you will, it’s one of the retail stocks to sell.
When immediately assessing the broader financial framework for Digital Brands, a few four-letter words come to mind. Just look at the data for yourselves. First, its cash-to-debt ratio sits at 0.09, worse than 85.18% of cyclical retail players. Second, its Altman Z-Score comes in at 7.81 below zero, indicating deep distress.
Operationally, it suffers a three-year revenue growth rate of 14.4% below breakeven. On the bottom line, its operating and net margins sit well below the zero line. Plus, its shares trade for 77 cents a pop, making it one of the retail stocks to avoid. Also, according to Gurufocus, DBGI features a 100% probability of distress.
BRC (BRCC)
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I’m going to tread carefully with BRC Inc (NYSE:BRCC) because the veteran-owned coffee shop catering toward conservative values commands a loyal fanbase. However, investors must be realistic with BRCC, which lost almost 18% of equity value since the Jan. opener. Just because it’s a “true” patriotically American company doesn’t necessarily make BRCC a buy. In the training year, for example, it plunged 62%.
Fundamentally, BRC runs into a generational headwind. Sure, many Gen Zs love listening to conservative or even right-wing voices. However, Joe Biden didn’t become president because conservative Gen Z-ers voted in droves for Donald Trump. No, Gen Z cares (on average) about sustainability and other pressing issues such as social equity. That’s not really the BRC ethos.
While the company enjoys a stout three-year revenue growth of 46.6%, it only has middling strength in the balance sheet. Also, its profit margins fell deeply into negative territory. To add insult to injury, BRCC is overvalued against tangible book value.
To be sure, analysts peg BRCC as a consensus moderate buy with a 58%-plus upside price target. However, in my opinion, the data and the dwindling conservative-values market make shares one of the retail stocks to sell.
Secoo Holding (SECO)
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Based in China, Secoo Holding (NASDAQ:SECO) claims to be Asia’s largest online integrated upscale products and services platform as measured by gross merchandise value in 2016. While an impressive stat, that was in 2016. For investors, they surely won’t appreciate that SECO appears to be a victim of the retail stock crash. Since the January opener, shares plunged 57%. In the trailing one-year period, they’re down more than 75%.
Notably, SECO easily ranks among the retail stocks to sell, with Gurufocus warning that it suffers from five red flags and no positive (or even neutral) signs. First, Secoo’s balance sheet appears to be distressed given its Altman Z-Score of 0.3. It’s also carrying too much debt relative to its cash position.
Operationally, Secoo prints a three-year revenue growth rate of 22.5% below breakeven. As for profitability, in the past 10 years, only three of them were in the black. That’s just not going to attract investors. Unsurprisingly, Gurufocus states that SECO features 99.4% of financial distress. Unless you can read the future, this is one of the worst retail stocks.
Blue Apron (APRN)
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Saving the worst for last, meal-kit delivery specialist Blue Apron (NYSE:APRN) presents an interesting idea that may be on its last legs. However, you don’t necessarily want to short APRN. According to Fintel, APRN has a short interest of 16.54% of its float. Also, on the investment platform’s proprietary Short Squeeze Score, it ranks 81.40 out of 100. So, it could fly higher for any reason or no reason at all.
Fundamentally, though, APRN represents one of the retail stocks to sell. Since the January opener, shares stumbled 27%. In the trailing one-year period, they fell more than 86%. Financially, it suffers from a deeply distressed balance sheet, as evidenced by its Altman Z-Score of 5.73% below breakeven.
Operationally, Blue Apron posts a three-year revenue growth rate of 28.7% below zero, ranked worse than 91.9% of its peers. Both operating and net margins average 23.82% below zero. On a final note, Gurufocus warns that Blue Apron faces a 94.95% probability of financial distress. So, it’s one of the retail stocks to avoid.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
