U.S. retail sales fell in October for the first time in seven months as the economy shows signs of starting to cool. Indeed, Thanksgiving holiday retail sales during the weekend of Black Friday through Cyber Monday were strong. Yet several retailers are issuing cautious guidance for both holiday spending and the current fourth quarter, claiming weakened demand. Retailers ranging from Walmart (NYSE:WMT) to Lululemon (NASDAQ:LULU) are raising concerns about slowing consumer spending.
This means that we could be in for some choppy waters when it comes to retail stocks in the months ahead. As such, investors may want to start separating the wheat from the chaff when it comes to retailers. Some will no doubt continue to perform strongly, while others will sink as consumers sit on their wallets.
Let’s examine three retail stocks to sell as consumers tighten their belts.
RH (RH)
Looking at the latest financial results of RH (NYSE:RH), it’s apparent that consumers aren’t buying high-end furniture. The company formerly known as Restoration Hardware reported disappointing numbers that sent its stock down 14% in one trading session.
RH stock is now down 5% on the year, with a grim outlook. The company expects the U.S. housing market to “remain frozen” into 2024 due to continued high interest rates for home mortgages.
RH reported a surprise loss of 12 cents a share for its fiscal third quarter. That was significantly worse than the 91 cent profit that was expected on Wall Street. The furniture company posted revenue of $751.2 million, which also missed Street forecasts for sales of $752.6 million. The guidance offered by RH was particularly bleak. Executives said that they will not release their new catalogue until the first quarter of 2024. Also, discounts will weigh on earnings in the year ahead.
Foot Locker (FL)
Few retail stock have been as bad for as long as Foot Locker (NYSE:FL). The sneaker and athletic apparel retailer just can’t get its house in order despite repeated attempts at a turnaround.
In 2023, FL stock is down 24%, bringing its five-year decline to 43%. The company has appointed a new CEO and is trying for a makeover. So far, nothing has actually helped. In August, Foot Locker indefinitely suspended its quarterly dividend payout of 40 cents per share. That sent the stock down 25% in one fell swoop.
Most recently, FL stock got a lift when the company reported better-than-expected financial results. However, despite the Q3 earnings beat, Foot Locker again lowered its earnings guidance. It dropped the fiscal Q4 range down to $1.30 to $1.40 per share from $1.30 to $1.50 a share previously. Also, Foot Locker said it continues to be hurt by sneaker giant Nike’s (NYSE:NKE) move to a direct-to-consumer sales model. This plan shifts away from third-party vendors such as Foot Locker.
GameStop (GME)
Admittedly, GameStop (NYSE:GME) is a difficult stock to evaluate. The video game retailer continues to defy logic. So, the company continues to operate a large network of brick-and-mortar retail outlets.
This, in spite of the age of digital downloads continuing to report declining sales and weak financial results. Recently, GameStop fell nearly 10% in one day after its latest quarterly print missed Wall Street’s targets. It showed little progress with regards to the digital turnaround strategy.
For its fiscal Q3, the company reported a loss of 1 cent per share. That was better than the loss of 8 cents that analysts expected. However, the company’s sales came in at $1.08 billion, which was below forecasts of $1.18 billion. Hardware and accessories sales declined 8% and software sales fell 9% year over year (YOY). GameStop’s new plan involves investing excess cash into the stock market and possibly cryptocurrencies. That route could go either really well or horribly wrong. Notably, GME stock is down 10% this year.
On the date of publication, Joel Baglole 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.