The retail landscape is undergoing a seismic shift, with macro trends set to assist some retailers while others will be disadvantaged by fierce competition. Here are three risky retail stocks that investors should steer clear of in 2024.
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Furniture Retailers in Financial Peril
The Plight of Big Lots Inc. (BIG)
Furniture retailing behemoth Big Lots Inc. has recently faced turbulent financial waters. The company witnessed a substantial decline in homes sold over the past year due to the Federal Reserve’s interest rate hikes, resulting in a significant revenue drop. In the 12 months leading up to October 2023, Big Lots Inc. generated $4.8 billion in revenue, a stark contrast from the $5.66 billion in revenue from the previous year.
It is anticipated that the volume of homes sold will see a noteworthy upturn in the latter half of 2024 as interest rates decrease, but this potential recovery may be too little, too late to stave off major cash flow problems. Big Lots Inc. is burdened with a substantial debt load of $2.45 billion, with only $46.6 million in cash and an alarming debt/equity ratio of 783%. Analysts have projected a per-share loss of $11.18 for the company in 2024, painting a grim financial outlook.
The Struggles of Stitch Fix (SFIX)
E-commerce player Stitch Fix, despite its unique subscription service offering, finds itself grappling with substantial challenges that are likely to persist in the foreseeable future. The company’s subscription service, which allows consumers to order and return clothes online, has failed to meet expectations, resulting in dwindling subscriber numbers and a sharp drop in average revenue per user, ultimately leading to a significant decline in overall sales.
Although Stitch Fix experienced a surge in share price a few years ago, with stocks reaching $96 in January 2021 from $49 in September 2018, the company is currently facing a drastic decline, with shares now trading at around $3.60. Despite cost-cutting measures that reduced the net loss from $207 million to $172 million, the company’s EBITDA plummeted to -$19.5 million from $16.8 million in the last fiscal year.
In its fiscal Q1 that concluded in October, Stitch Fix recorded an 18% year-over-year revenue decline, coupled with a 15% drop in its subscriber base and a net loss from continuing operations amounting to $26.17 million. While this figure marked an improvement from the $48 million loss reported for the same period a year earlier, the ongoing decline in both subscriber base and revenue presents a daunting challenge for the company’s financial health.
