In the face of Amazon’s (NASDAQ:AMZN) continuous taking of market share in the retail space, many American brick-and-mortar stores are struggling mightily. What’s more, a multitude of brick-and-mortar retailers are having a great deal of trouble competing with the two retail brick-and-mortar behemoths – Target (NYSE:TGT) and Walmart (NYSE:WMT). That’s why you may need to consider retail stocks to sell.
Multiple retail sectors have their own individual problems. For example, drug store chains are losing market share to direct mail prescription options and are being hit with massive settlements for their role in the opioid crisis. Home-goods companies are struggling due to the historically low number of home sales. And finally, the spending power of many consumers has been tremendously eroded by elevated inflation and high interest rates.
Add it all up, and it’s clear that investors should avoid the shares of many brick-and-mortar retail chains in the current environment. Here are three retail stocks to sell.
Kohl’s (KSS)
Kohl’s (NYSE:KSS) is a predominantly brick-and-mortar apparel retail chain that charges relatively high prices. However, it primarily attracts middle-income, rather than wealthy consumers. Therefore, I’ve long believed that the company would struggle at a time when many middle-income consumers are cutting back on their spending due to high inflation and elevated interest rates.
Many on Wall Street apparently have had that view in recent weeks as 32.6% of the float of KSS stock was sold short as of April 27, according to Seeking Alpha.
And it turns out that Kohl’s is indeed struggling in the current environment as the firm’s top line slid 5.3% last quarter versus the same period a year earlier while its sales at comparable stores sank 4.4% from a year ago. Also importantly, the company’s operating income slid to $43 million versus $98 million in the first quarter of 2023.
Kohl’s will likely continue to endure tough times as middle-class shoppers look for cheaper options, making it one of the top retail stocks to sell.
Home Depot (HD)
Amid very high prices and high interest rates, home sales continue to decline in the U.S. For example, in May, the number of existing homes sold declined 0.7% compared to April. Moreover, the number of existing homes that changed hands last month sank 2.8% compared to the same period a year earlier.
That’s bad news for Home Depot (NYSE:HD), the home improvement chain, because new homeowners tend to spend large amounts of money improving their new homes.
And Home Depot’s Q1 financial results indicate that it is indeed struggling as its sales dropped 2.4% during the quarter versus the same period a year earlier while its comparable sales in the U.S. slid 3.2% year-over-year. On the bottom line, it generated net income of $3.6 billion in the first quarter, down from $3.9 billion during the same period a year earlier.
Also negatively for the company, CEO Ted Decker noted that the firm was hurt by “continued softness in certain larger discretionary projects” in Q1.
And in another bearish indication for the retailer, Saudi Arabia’s sovereign wealth fund unloaded all of its shares of HD stock in Q1.
CVS (CVS)
Drug store chains are being hurt by increased competition from increased utilization of direct-mail prescription plans, including Amazon’s initiative in that area. Moreover, the chains are being undermined by rising theft in certain areas, along with consumers’ aversion to the relatively high prices that their stores charge for many items. Additionally, the large settlements that they’ve had to pay out as a result of their role in the opioid crisis is weighing tremendously on their balance sheets.
Given all of these points, CVS (NYSE:CVS) is definitely on my list of retail stocks to sell.
And indeed, the firm’s Q1 results came in well below Wall Street’s expectations. Specifically, the company generated revenue of $88.4 billion, $800 million below analysts’ average estimate of $88.4 billion. On the bottom line, it reported earnings per share of $1.31, 39 cents below the mean outlook.
The firm lowered its 2024 earnings per share guidance to at least $5.64 from at least $7.06.
On the balance sheet, the retailer had, as of the end of Q1, total debt of $81.8 billion and total cash of just $13.1 billion.
On the date of publication, Larry Ramer held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in AMZN.