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.
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.