Nike And 3 Other Retail Stocks To Avoid This Summer

The performance of the Retail sector has been unpleasant of late as the sector continues to battle a tough retail environment, thanks to heightened competition, sluggish mall traffic due to rise of e-commerce and weak margins. This was pretty obvious with the dismal quarterly results of retailers in the just-past quarter, which led them to provide bleak outlook for 2016.

Also, the challenging industry background seems to have crept into the current quarter, as earnings for the S&P 500 stocks in the Retail sector are projected to be down 0.7% on 0.2% fall in margins. (For a detailed look at the earnings trend for this sector and others, please read our latest Earnings Trends report)

What makes this clearer is the mixed fourth-quarter fiscal 2016 results of leading athletic apparel retailer NIKE Inc. (NYSE:NKE) on Jun 28. While Nike continued its positive earnings streak with 16th consecutive beat, revenues marked the third consecutive quarterly miss. This sent the stock down 4% in the after-hours session that day. Additionally, the Nike stock has lost about 7% year to date.

The negative investor reactions after the earnings release were primarily due to the third consecutive sales miss as well as a slowdown in future orders. Sales were hurt by currency headwinds while future orders lagged expectations due to stiff competition from rivals which weighed in on the demand for Nike’s basketball shoes.

Going into fiscal 2017, Nike expects currency woes to linger and affect results, aggravated by Brexit which has increased the volatility of global currencies. As a result of which, the company expects revenue in the first half of fiscal 2017 likely to suffer a stronger impact from the fluctuating currencies than the latter half. Consequently, the company provided a bleak outlook for first-quarter fiscal 2017.

Going by the company’s expectations, the Zacks Consensus Estimate for fiscal 2017 and fiscal 2018 also trended down in the last 30 days. The stock currently holds a Zacks Rank #4 (Sell).

Moving on, we will take a look at three other retail stocks that are underperforming and should no longer be a part of one’s portfolio.

First, beware of specialty casual apparel retailer Abercrombie & Fitch Co. (NYSE:ANF) that has lost nearly 28% year to date and holds a 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.

The Zacks Consensus Estimate of 87 cents and $1.11 for fiscal 2016 and fiscal 2017 has declined 3 cents and 6 cents respectively over the past 30 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased to a loss of 21 cents from loss of 20 cents over the same time frame.

Next, Nordstrom Inc. (NYSE:JWN) is a sure no. The stock price of this fashion specialty retailer has plunged roughly 16% year to date. This Zacks Rank #5 stock continued its dismal earnings trend into fiscal 2016 as first quarter top and bottom lines lagged estimates for the third time in a row. This represents an average negative surprise of 15.7% over the trailing four quarters. Moreover, a competitive retail landscape and consumers’ cautionary approach while purchasing discretionary items, have been weighing on the stock’s performance.

The Zacks Consensus Estimate of $2.55 and $2.87 for fiscal 2016 and fiscal 2017 has dropped 2 cents and 46 cents respectively over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased 13 cents to 55 cents over the same time frame.

Last but not the least, avoid Citi Trends Inc. (NASDAQ:CTRN) , a value-priced retailer of urban fashion apparel and accessories. This Zacks Rank #5 company posted its third straight sales and earnings miss, representing a negative earnings surprise of 5.7% in the trailing four quarters. Further, the company expects its average units sold to remain under pressure in fiscal 2016. Following the drab results, the Zacks Consensus Estimate of 92 cents and $1.29 for fiscal 2016 and fiscal 2017 has decreased 27 cents and 2 cents respectively over the past 60 days. Moreover, the Zacks Consensus Estimate for the second quarter has decreased to a loss of 5 cents from earnings of 4 cents over the same time frame. The stock has plunged nearly 19% year to date.