Retail sales volume fell in July, marking the third consecutive month of decline. Sales volume plunged 1.6% versus June and 8.1% in the prior 12 months, amid declining consumer confidence due to the record high inflation.

“This year, we’re looking at negative discretionary cash flow for the first time since the 2008-09 financial crisis,” Goldman consumer goods analyst Jason English said.

On the other hand, retail companies continue to struggle with supply chain issues. In addition, among the 79 large retailers that reported earnings between April 1 and May 23 this year, 59% disclosed a decline in consensus revenue estimates for the next year, while 71% saw a decrease in estimates for EBITDA.

Given this backdrop, it could be wise for investors to sell fundamentally weak retail stocks Allbirds, Inc. (BIRD) and The Gap, Inc. (GPS).

Allbirds, Inc. (BIRD)

BIRD manufactures and sells footwear and apparel products for men and women through its retail stores in the United States and internationally, as well as online.

For the fiscal quarter ended June 2022, BIRD’s gross profit decreased 26.1% year-over-year to $28.19 million. Loss from operations increased 603.5% from the prior-year quarter to $29.33 million. Net loss per share increased 42.9% from the same period the prior year to $0.20.

The consensus EPS estimate of negative $0.09 for the fiscal fourth quarter ending December 2022 indicates a 1.2% year-over-year decline. Also, for the fiscal year ending December 2022, the company’s EPS is expected to come in at a negative $0.54.

BIRD’s forward Price/Sales multiple of 1.97 is 125.6% higher than the industry average of 0.87. In terms of its forward EV/Sales, the stock is trading at 1.30x, 16.8% higher than the industry average of 1.12x.

The stock has declined 78.6% over the past nine months to close the last trading session at $4.11.

BIRD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BIRD has a Value, Stability, and Quality grade of F and a Growth, and Sentiment grade of D. In the 67-stock Fashion & Luxury industry, it is ranked last. Click here to see the additional POWR Ratings for BIRD (Momentum).

The Gap, Inc. (GPS)

GPS operates as an apparel retail company offering apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.

For the fiscal quarter ended July 30, 2022, GPS’s net sales decreased 8.4% year-over-year to $3.86 billion. Operating income decreased 106.8% from the prior-year quarter to a negative $28 million. The company’s net income and EPS came in at negative $49 million and negative $0.13, down 119% and 119.4% from the prior-year period.

Street revenue estimate of $3.82 billion for the fiscal quarter ending October 2022 reflects a 3% year-over-year decrease. Also, the consensus revenue estimate of $15.68 billion represents a 6% year-over-year decline in the ongoing fiscal year.

In terms of its forward EV/EBITDA, GPS is currently trading at 15.91x, 83.5% higher than the industry average of 8.67x. Its forward EV/EBIT multiple of 1,438.82 is 11,873.1% higher than the industry average of 12.02.

The stock has slumped 65.8% over the past year to close the last trading session at $9.14.

It’s no surprise that GPS has an overall D rating, which translates to Sell in our POWR Ratings system. GPS also has a D grade for Stability. It is ranked #60 in the same industry.

To see the additional POWR Ratings for Quality, Growth, Momentum, Value, and Sentiment for GPS, click here.

BIRD shares were trading at $3.88 per share on Thursday morning, down $0.23 (-5.60%). Year-to-date, BIRD has declined -74.27%, versus a -17.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

More Resources for the Stocks in this Article