Food inflation surged to 10.4% year-over-year in June, the largest increase since 1981. Moreover, CPI in June increased a record 9.1%. Amid such sky-high prices and consecutive rate hikes, the retail industry’s overall growth outlook seems grim.
In the face of rising recession fears, on July 25, 2022, retail giant Walmart Inc. (WMT) slashed its earnings forecast, thereby wreaking havoc across the retail industry. The company plans to introduce major price cuts in clothing and general merchandise and expects its full-year profit to plunge by 11% to 13%.
WMT reduced its profit estimates, anticipating a discretionary purchase cut as food and fuel costs keep rising. Following the warning, fundamentally weak retail stocks Ollie's Bargain Outlet Holdings, Inc. (OLLI), Five Below, Inc. (FIVE), and Wesfarmers Limited (WFAFY) are best avoided now.
Ollie's Bargain Outlet Holdings, Inc. (OLLI)
OLLI operates as a brand-name merchandise retailer. The company offers housewares, bed and bath, food, floor coverings, health and beauty aids, books and stationery, toys, electronics, and other products.
OLLI’s net sales came in at $406.67 million for the first quarter ended April 30, 2022, down 10.1% year-over-year. Its adjusted net income came in at $12.77 million, down 76% year-over-year, while its adjusted EPS came in at $0.20, down 75% year-over-year.
OLLI’s EPS is expected to decline 20.3% year-over-year to $1.88 in 2023. Over the past year, the stock has lost 36.4% to close the last trading session at $58.95.
OLLI’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a D grade for Growth, Value, Stability, and Sentiment. Click here to access the additional POWR Ratings for OLLI (Momentum and Quality). OLLI is ranked #39 out of 46 stocks in the Specialty Retailers industry.
Five Below, Inc. (FIVE)
FIVE is a leading specialty value retailer in the United States, primarily serving tween and teen customers. The company offers accessories and items used to complete and personalize living spaces.
FIVE’s net sales increased 7% year-over-year to $639.60 million for the first quarter ended April 30, 2022. However, its net income came in at $32.72 million, down 34% year-over-year. Moreover, its EPS came in at $0.59, down 33% year-over-year. Also, its net cash provided by operating activities came in at $42.12 million, down 36.9% year-over-year.
FIVE’s EPS is expected to decrease marginally year-over-year to $4.87 in 2023. The stock has lost 38.6% year-to-date to close the last trading session at $127.07.
FIVE has an overall D grade, equating to Sell in our POWR Ratings system. Also, it has a D grade for Growth, Value, Stability, and Sentiment.
Click here to access the FIVE ratings for Momentum and Quality. It is ranked #38 in the Specialty Retailers industry.
Wesfarmers Limited (WFAFY)
WFAFY, headquartered in Perth, Australia, primarily engages in the retail business in Australia, New Zealand, the United Kingdom, and globally. It is one of Australia's largest employers and has a shareholder base of approximately 484,000.
For the half year ended December 31, 2021, WFAFY’s revenue decreased marginally year-over-year to A$17.76 billion ($12.51 billion). Its net profit after tax came in at A$1.21 billion ($850 million), down 14.2% year-over-year. In addition, its EPS came in at 107.30 cents, down 14.2% year-over-year.
WFAFY’s revenue is expected to decrease marginally year-over-year to $24.44 billion in June 2022. Over the past year, the stock has lost 28.4% to close the last trading session at $16.32.
WFAFY’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. In addition, the stock has a D grade for Value, Momentum, and Quality.
We also have graded WFAFY for Growth, Stability, and Sentiment. Click here to access all of WFAFY’s ratings. It is ranked #37 in the same industry.
OLLI shares were trading at $61.84 per share on Monday morning, up $2.89 (+4.90%). Year-to-date, OLLI has gained 20.80%, versus a -12.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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