Stock Market Crash Warning: Don’t Get Caught Holding These 3 Retail Stocks

Stocks to sell

The Federal Reserve is finally winning the war against inflation; that’s at least what the latest economic report says, but should still keep in mind that there are retail stocks to avoid. The U.S. economy slowed down sharply in the first-quarter (Q1), growing by just 1.6%, a dramatic drop from the 3.4% growth in the prior-year period. That statistic spells trouble for retail stocks, with consumer spending waning amidst weaker economic momentum.  Hence, it’s probably the right time for investors to consider the retail stocks to avoid.

To be fair, the retail stocks discussed in the article have been struggling for a while now. Their problems, though, are likely to be compounded further, given a challenging economic environment. With that said, here are three retail stocks to offload from your portfolios.

Retail Stocks to Avoid: GameStop (GME)

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GameStop (NYSE:GME) has been criticized extensively over the years, and though it may seem sadistic to continue doing so, it keeps providing reasons for it. The meme stock favorite is nothing more than a catalyst for short sellers and Reddit users to spark short-lived market surges. Overall, though, GME stock has shed more than 74% of its value in the past three years and more than 40% last year alone.

Furthermore, GameStop’s business remains a mess despite its management’s best efforts to spark a turnaround. I was all ears when it announced a shift towards a digital-first approach, in line with the broader market trends. Ironically, despite its shift toward digital, GameStop’s recent quarterly results have shown a decline in software sales. Its software sales slid 31% in its fourth-quarter (Q4), with a 12% drop in hardware sales. Overall sales were down almost 20% in the quarter to $1.79 billion, missing estimates by $256 million. Moreover, it was the fifth time it missed revenue estimates in the past seven quarters.  Despite its troubling financials, GME stock trades at more than 395 times forward earnings.

Lands’ End (LE)

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Lands’ End (NASDAQ:LE) has been an American multi-channel retailer for over 60 years. It specializes in casual apparel, accessories, shoes, and home products and has a sizable online presence in addition to its established brick-and-mortar operations.

The company has witnessed a marked slowdown in top-and-bottom-line growth over the past few years, suffering from debt. It still attracts a financial strength rating of just 5 out of 10 from Gurufocus, with an Altman Z-Score that’shovering between Distress and Grey.

However, plenty of excitement surrounds the stock under its new management, with its stock gaining almost 95% last year. It has also kept up the pace this year, gaining over 45% year-to-date (YTD). With decreased clearance inventory sales, effective cost control, and a focus on high-quality sales, the firm swung to a profit in Q4.

Though its management is delivering, the rally seems overdone at this point. The broader market is in the negative, while LE stock is up almost 28% this month alone. A pullback is likely, and waiting on the sidelines for a better price is best.

Stitch Fix (SFIX)

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Stitch Fix (NASDAQ:SFIX) is an online retailer that’s struggled to find its footing post-pandemic. The firm provides a subscription-based service where users can order apparel online with the option to return them if they don’t meet their expectations. It solved an important pain point, and with the pandemic-led tailwinds at its back, the company soared to new heights in the Covid era. The company posted multiple quarters during the pandemic, adding millions in active customers while growing its sales by double-digit margins.

However, with the tailwinds normalizing, the company faces a massive challenge in retaining its client base. It lost more than 100,000 active customers in its most recent quarter, posting negative growth rates since the third-quarter (Q3) of 2023.  Moreover, it lowered its 2024 revenue forecast to fall in the $1.29 billion to $1.32 billion range, significantly behind the estimated $1.35 billion. SFIX stock is a ‘moderate sell’ with zero buy ratings, according to analysts.

On the date of publication, Muslim Farooque 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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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