The 3 worst performing retail stocks of 2018 (so far)

Holders of these stocks have endured a miserable year so far and there could be worse to come.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The unforgiving rise in nimble online competitors combined with relatively high fixed costs and a seemingly-still-cautious consumer have collectively conspired to bring down the share prices of many companies in the retail sector this year, to the point where it seems logical to ask whether some high street (or retail park) names even have a future.

Here are the three of the biggest losers in 2018 so far.

Must do better

No prizes for guessing department store retailer Debenhams (LSE: DEB) features on the list. Following multiple profit warnings, the shares are down 66% since the start of the year. For regular readers of these pages, this should come as no surprise. Many at the Fool — including myself — have been bearish on the business for a while.

Earlier this month, the company was forced to reaffirm its cash position after it was reported that credit insurers had refused cover for some of its suppliers, meaning that the latter would not be protected if Debenhams went bust. In such a situation, these suppliers could demand payments from the company in advance, hence the suspected pressure on its cash pile.

As one of the most shorted stocks on the market, it would seem that many do not share management’s confidence in Debenhams’ financial health. While betting against a company can certainly backfire (Ocado, anyone?), I’m inclined to think that the business is highly likely to follow BHS to the retail graveyard.

Trainer seller Footasylum (LSE: FOOT) is another heavy faller this year — down 72%. For a company that’s only recently listed, that’s pretty inexcusable.

Despite revenue and adjusted EBITDA moving 33% and 12% higher respectively over the last financial year, statutory pre-tax profit dived from £8.1m to £1.9m due to costs associated with its IPO. 

With the company hinting that it had become yet another victim of high street malaise, forward guidance was also disappointing with growth now expected to slow as a result of investment to capitalise on peak trading periods in the second half of the year. Suggestions that top brands are becoming increasingly keen on selling to customers directly could also be problematic for firms in this space going forward.

Footasylum isn’t necessarily down and out but a P/E approaching 16 still looks far too expensive when there are less risky options elsewhere.

Holding the dubious gold medal position for worst performing retail stock — and ironic share ticker — over the last seven months goes to Carpetright (LSE: CPR) with holders enduring an 83% fall in the stock since January. Quite whether the shares can be resuscitated from here is debatable.

To recap, full-year results (to the end of April) were simply awful, revealing an underlying pre-tax loss of £8.7m in stark contrast to the £14.4m profit a year earlier. As suppliers grow increasingly cautious, Carpetright’s balance sheet also looks seriously stretched with net debt over five times what it was in 2017. 

As part of its Company Voluntary Arrangement, the firm will close 81 of its stores by the end of September. Those remaining are being refurbished and new branding introduced in an attempt to drum up business.  

But with talk of restructuring activity and the warm weather having a big impact on trading in the first eight weeks of the financial year, I don’t hold out much hope for those still invested.   

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »