The multi-decade high inflation has adversely affected the retail industry. Retailers within the home décor and furnishing space are worried about the rising prices and economic contraction as they affect consumers' ability to spend beyond necessities. Moreover, persistent global supply chain disruptions and high freight costs have increased retailers' challenges in maintaining their inventory.
Rising recession fears have dampened consumer sentiment further. This is evident from the VanEck Vectors Retail ETF’s (RTH) 21.4% year-to-date decline.
Given the slumping retail sales and decline in consumer spending, it will be difficult for companies within this sector to swim against the tide of worsening economic conditions. Amid this backdrop, Wells Fargo analyst Zachary Fadem advises avoiding retail stocks Bed Bath & Beyond Inc. (BBBY), JOANN Inc. (JOAN), and Wayfair Inc. (W).
These stocks are also rated Strong Sell or Sell in our proprietary POWR Ratings system. So, they are best avoided now.
Bed Bath & Beyond Inc. (BBBY)
BBBY is an omnichannel retailer offering a range of domestic merchandise such as bed linens, bath items, kitchen textiles, home furnishing items, and various juvenile products. The company sells its products through its website and under ten brands: Bee & Willow, Marmalade, Nestwell, Haven, Simply Essential, Our Table, Wild Sage, Squared Away, Studio 3B, and H for Happy.
In the fiscal fourth quarter ended February 26, 2022, BBBY’s net sales decreased 22% year-over-year to $2.05 billion. BBBY’s adjusted net income declined 274.5% year-over-year to $81.55 million, while its adjusted EBITDA fell 117.9% year-over-year to $29.64 million. The company’s adjusted net loss per common share amounted to $0.92, representing a decline of 330% year-over-year.
Analysts expect BBBY's loss per share estimate to be $1.39 for the first quarter ended May 2022. Its consensus revenue estimate is expected to decline 22.7% year-over-year to $1.51 billion in the to-be-reported quarter. BBBY has missed the consensus EPS estimates in three of the trailing four quarters.
BBBY has declined 78.7% in price over the past year to close the last trading session at $6.53.
BBBY's POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. It has an F grade for Stability and Sentiment and a D for Growth and Momentum. It is ranked #57 of 63 stocks in the Home Improvement & Goods industry.
Click here to see BBBY's POWR Ratings for Value and Quality.
JOANN Inc. (JOAN)
JOAN operates as a fabric and craft retailer. Its offerings range from cotton fabrics, warm fabrics, home decorating and utility fabrics, accessories, and fashion and sportswear fabrics to paper crafting components, craft materials, yarn, and yarn accessories, needlecraft kits and supplies, home decor accessories, and also non-merchandise services.
JOAN's net sales decreased 13.3% year-over-year to $498 million in the fiscal 2022 first quarter ended April 30, 2022. Its gross profit declined by 20.4% from its year-ago value to $240.70 million. The company’s net loss amounted to $35.10 million compared to a net income of $15.10 million in the same quarter last year. Its adjusted EBITDA decreased 67.7% year-over-year to $18.60 million.
Street expects JOAN's loss per share to amount to $0.43 for the second quarter (ending July 2022), representing an increase of 117% from the prior-year period. Its consensus revenue estimate is expected to decline 8.6% year-over-year to $454 million for the same period.
Shares of JOAN have declined 45.9% over the past year. It closed the last trading session at $8.15.
JOAN's POWR Ratings reflect its poor prospects. The company has an overall D rating, equating to Sell in our proprietary rating system.
JOAN has an F grade for Sentiment and a D for Growth, Momentum, and Stability. It is ranked #36 of 46 stocks in the Specialty Retailers industry.
To see additional POWR Ratings (Value and Quality) for JOAN, click here.
Wayfair Inc. (W)
W is an e-commerce platform for home furnishings. It offers a selection of furniture, décor, housewares, and home improvement products under five brands: Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold.
For its fiscal first quarter ended March 31, 2022, W’s net revenue decreased 13.9% year-over-year to $2.99 billion. Its net loss came in at $319 million, compared to a net income of $18 million in the year-ago period. Also, its adjusted EBITDA decreased 154.9% from the prior-year period to $113 million. The company’s adjusted loss per share came in at $1.96, up 296% from the prior-year period.
The Street expects the consensus loss per share estimate for the fiscal second quarter (ending June 2022) to be $1.84, while the consensus revenue estimate is expected to decline 16.1% from its prior-year value to $3.24 billion.
The stock has slumped 84.1% over the past year to close the last trading session at $50.32.
W’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The stock has an F grade for Sentiment and a D grade for Growth, Momentum, Stability, and Quality. It is ranked #45 in the same industry.
To see W’s POWR Ratings for Value, click here.
BBBY shares were trading at $5.04 per share on Wednesday afternoon, down $1.49 (-22.82%). Year-to-date, BBBY has declined -65.43%, versus a -19.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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