In the era of Amazon (NASDAQ:AMZN), many retailers have gone bankrupt because they could not compete with the e-commerce juggernaut. And of course, the pandemic-era lockdowns causing many retailers to become saddled with gargantuan debt did not help. In just the last several years multiple, once major, companies have all gone belly up. The most recent victim to file for Chapter 11 was Express (OTC:EXPR). It’s possible that, given the company’s reliance on selling clothes worn in offices, the work-from-home trend badly damaged the retailer. Express was also hurt by high debt and expensive leases. Here are three retailers that could easily be among the next to go bankrupt, making them retail stocks to avoid.
Stitch Fix (SFIX)
For any company, declining net customer totals is definitely a very bad sign. So the fact that Stitch Fix (NASDAQ:SFIX), which sells apparel online, lost a net total of 6% of its customer base in Q2 2024 is definitely a good reason to avoid SFIX stock. And compared with the same period a year earlier, Stitch Fix shed 17% of its users during the quarter.
Given the firm’s declining customer totals, I’m not surprised that its sales fell 17.5% year-over-year in Q2 .
For the third quarter, which ended on April 27, SFIX expects an adjusted EBITDA of potentially -$5 million. So it appears that the retailer may be heading into the red even on an adjusted EBITDA basis.
And indicating that the Street is losing patience with the name, the shares have tumbled 40% so far this year.
Peloton (PTON)
Some may dispute my decision to categorize Peloton (NASDAQ:PTON) as a retailer. But since the firm does have physical stores and sell its products to consumers, I view it primarily as a retailer.
Like Stitch Fix, Peloton’s customer base is shrinking which is never a good sign for any company. Specifically, in Peloton’s fiscal Q2 2024, its total membership declined 4% year-over-year (YOY) to 6.4 million. Meanwhile, its paid app subscription total fell 16% YOY to 718,000. And in another negative development, its top line dropped 6% YOY.
On a positive note, the amount of its cash burned by operating activities did sink 65% to $31.2 million in Q2. Still, given the meaningful declines of its customer base, I believe that the company will have difficulty shrinking its loss much further. That’s particularly true because the improvement in its cash burn was entirely due to a large, 14% YOY decline in its operating expenses. As is well known, the extent to which firms can cut their expenses is always limited.
Peloton’s long-overdue decision to start selling its products through third parties, including Dick’s Sporting Goods (NYSE:DKS) and Amazon, bore fruit, as Peloton’s revenue from those channels jumped 74% YOY in Q2. And its partnership with lululemon (NASDAQ:LULU), established last September, could pay off too.
But given its continued, sizeable cash burn, revenue declines and customer losses, along with its $1.6 billion of net debt, I think that these positive moves will probably be a case of “too little, too late” for Peloton. This places PTON firmly among the retail stocks you will want to avoid.
GameStop (GME)
In the wake of GameStop’s (NYSE:GME) poor Q4 results, investment bank Wedbush predicted that the retailer would not survive past 2029.
The bank believes that the firm’s top-line will probably sink by $150 million to $200 million annually, while GameStop will probably not be able to cut its costs sufficiently to compensate for those declines. The retailer’s main problem is that it does not appear to have found a way to compensate for its declining video-game sales, Wedbush explained.
For Q4, GameStop’s revenue came in at $1.078 billion, down from $1.186 billion during the same period a year earlier. Its operations burned a huge $203.7 million of cash during the quarter.
GameStop’s declining revenue and poor outlook definitely make it one of the retail stocks to avoid at all costs.
On the date of publication, Larry Ramer held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
