3 Retail Stocks that are No Longer in Investors' Good Books

We had learnt in school that “A stitch in time saves nine.” It simply means that a timely action can prevent some serious loss later on. How about applying the same principle to your portfolio? It would be prudent to exit underperforming stocks to avoid hurting your portfolio’s returns. Below, we will take a look at three retail stocks that no longer deserve a place in your portfolio. Why is it so? Let’s analyze the stocks one by one.

L Brands, Inc. LB: Let’s find out why L Brands is out of favor now. This specialty retailer of women’s intimate and other apparel, beauty and personal care products, carries a Zacks Rank #4 (Sell). Moreover, shares of the company have nosedived roughly 30% year to date. Though L Brands registered the third straight quarter of positive earnings surprise with its first-quarter fiscal 2016 results, it failed to check the decline in the bottom line.

The year-over-year fall in adjusted earnings was primarily due to foreign currency headwinds, incremental interest expense and pre-opening costs for the flagship Victoria’s Secret store. Consequently, L Brands lowered its fiscal 2016 earnings projection and provided a subdued outlook for the second quarter against the backdrop of its performance and short-term challenges. (Read: L Brands Tops Q1 Earnings, Stock Down on Tepid View).

The Zacks Consensus Estimate of $3.70 and $3.97 for fiscal 2016 and fiscal 2017 has dropped 39 cents and 52 cents, respectively, over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased 14 cents to 56 cents over the same time frame.

L BRANDS INC Price and Consensus

L BRANDS INC Price and Consensus | L BRANDS INC Quote

Abercrombie & Fitch Co. ANF: Abercrombie is another stock that is no longer in investors’ good books. Shares of this specialty retailer of casual apparel have lost roughly 34% year to date and there seems to be no catalyst to help it regain the lost momentum. This is clearly evident from the stock’s Zacks Rank #5 (Strong Sell).

After three straight quarters of positive earnings surprises, Abercrombie slipped to a loss in first-quarter fiscal 2016. Also, the loss was wider than the Zacks Consensus Estimate. Moreover, the company’s sales missed expectations and fell year over year owing to soft traffic trends in international markets as well as its U.S. flagship and tourist stores. Management expects the fiscal second quarter to remain challenging, which will result in lower comparable store sales and gross margin. (Read: Abercrombie Stock Down as Q1 Loss Misses Estimates)

The Zacks Consensus Estimate of 87 cents and $1.11 for fiscal 2016 and fiscal 2017 has declined 31 cents and 32 cents, respectively, over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased to a loss of 21 cents from earnings of 7 cents over the same time frame.

ABERCROMBIE Price and Consensus

ABERCROMBIE Price and Consensus | ABERCROMBIE Quote

Nordstrom Inc. JWN: Last but not least is Nordstrom that remains deeply entrenched in the bearish territory with its shares having plunged roughly 24% year to date.

Nordstrom, which carries a Zacks Rank #5, commenced fiscal 2016 on a downbeat note, continuing with its disappointing performance in the first quarter, wherein both the top and bottom lines lagged estimates for the third time in a row. Earnings plunged sharply year over year, bearing the brunt of lower-than-anticipated sales and soft margins that stemmed from higher markdowns to efficiently align inventory with the existing trends. These factors also led management to lower its earnings and sales projections for fiscal 2016. Moreover, a competitive retail landscape and consumers’ cautionary approach while purchasing discretionary items, have been weighing on the stock’s performance. (Read more: Nordstrom Cuts View on Q1 Earnings Miss; Stock Down)

The Zacks Consensus Estimate of $2.55 and $2.87 for fiscal 2016 and fiscal 2017 has dropped 63 cents and 64 cents, respectively, over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased 16 cents to 56 cents over the same time frame.

NORDSTROM INC Price and Consensus

NORDSTROM INC Price and Consensus | NORDSTROM INC Quote

Bottom Line

With share price tumbling and estimates witnessing downward revisions, it may not be prudent to keep these stocks in your portfolio, at least for the time being. Rather, you can shift your focus to better-ranked retail stocks that are backed by sound Zacks Consensus Estimate revision, a VGM Score of “A” and sturdy fundamentals. These include:

Dave & Buster's Entertainment, Inc. PLAY, which owns and operates entertainment and dining venues, and flaunts a Zacks Rank #1 (Strong Buy) with a VGM Score of “A”.

Home improvement retailer, The Home Depot, Inc. HD, which holds a Zacks Rank #2 (Buy) and a VGM Score of “A”.

Operator of casual dining restaurants, BJ's Restaurants, Inc. BJRI, which carries a Zacks Rank #2 and a VGM Score of “A”.

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HOME DEPOT (HD): Free Stock Analysis Report
 
ABERCROMBIE (ANF): Free Stock Analysis Report
 
NORDSTROM INC (JWN): Free Stock Analysis Report
 
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
 
DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report
 
L BRANDS INC (LB): Free Stock Analysis Report
 
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