These two retailers are facing serious headwinds not only from the pandemic but also from e-commerce and discount retailers. Avoid for now.
Nov. 23, 2020
Brick-and-mortar retail has been dying a steady death at the hands of growing e-commerce trends, which were further fueled by the pandemic’s lockdown orders. The outbreak has forced people to work and study from home. Many were furloughed or fired and additional unemployment benefits have long since lapsed. As a result, people didn’t need new clothing for themselves or their children and many couldn’t even afford to shop for non-essentials.
This year, a slew of retailers has filed for bankruptcy, including Brooks Brothers, JCPenney, Lord & Taylor, and J. Crew. Macy’s (NYSE: M) and Nordstrom (NYSE: JWN), although not quite there yet, have both suffered significant losses and we feel you should avoid these two stocks, at least while the pandemic continues to rage on.
When the pandemic started, Macy’s had to shutter all of its 840 stores and furlough 130,000 employees, the majority of its workforce. Its stock price is down nearly 43% year-to-date (YTD). Macy’s valuation has become so low that in an echo of Lehman Brothers’ fate during the great recession, the real estate of its flagship store in midtown Manhattan is worth more than its entire market cap. The company’s revenue is down nearly 10% since 2015 and its debt-to-equity ratio is the highest it has ever been at 7.57 (anything higher than 2.0 is considered risky).
When Macy’s reopened its stores, traffic was significantly lower and it reported net sales down over 36% from a year ago in its last quarterly report. Customers stayed away and chose to shop either online or at discount retailers like Ross or TJ Maxx. The company was already in trouble even before the pandemic as it planned to shutter a fifth of all its stores (125) and cut 2,000 corporate-level jobs as part of a three-year savings plan. It may need to do much more in the aftermath of the pandemic.
Nordstrom, although being an early e-commerce adopter and offering a lower price point in its discounted Rack stores, is also suffering. According to the company’s Q2 2020 report, net sales are down nearly 53% and revenue is down nearly 52% from the same time last year. Additionally, Nordstrom’s stock price is down over 46% YTD and its current debt-to-equity ratio is the highest it has ever been at 53.80. E-commerce, which accounts for 61% of all the company’s sales, fell 5% in the last quarter.
To secure profits, the company postponed its annual anniversary sale from July to August, assuming weaker headwinds from the pandemic at that time; this means that results won’t be available until the next quarterly report when Nordstrom will hopefully report a better EPS than its $1.62 loss per share in the last quarter.
The outlook isn’t necessarily all doom and gloom for these companies as they may face some benefits, particularly from bankrupted retailers. Macy’s CEO, Jeff Gennette, estimated that there’s around $10 billion in annual sales to scavenge from the deaths of other retailers. Nordstrom’s popular anniversary sale was bolstered by wish lists to which 20 million customers contributed and no doubt boosted conversions to its e-commerce offerings. It also has a great entry point to its full-priced store via its Rack stores. However, before investing, it would be best to wait until the pandemic is under control to see how these retailers perform.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.