Black Friday sales increased but reflected the supply chain challenges. According to Adobe Analytics data, customers spent about $8.9 billion online on Black Friday, slightly less than the spending in 2020.

As per Sensormatic Solutions data, Black Friday traffic at retail stores was down 28.3% from its 2019 level due to the popularity of online purchases and shoppers spreading out their holiday spending throughout the season. Moreover, the newly identified omicron coronavirus variant triggered a worldwide alarm that caused stores on Black Friday to experience the lowest level of clearance goods for sale in five years.

Given this backdrop, fundamentally weak retail stocks, The Gap, Inc. (GPS - Get Rating) and Nordstrom, Inc. (JWN - Get Rating), could be best avoided now.

The Gap, Inc. (GPS - Get Rating)

GPS is an apparel retail company that offers apparel, accessories, and personal care products. The company operates under the brand names – Old Navy, Gap, Banana Republic, Athleta, Intermix, and Janie and Jack.

On November 29, shareholder rights law firm Labaton Sucharow announced that it is investigating GPS on the grounds of securities violations and fiduciary duty breach claims. The company also lowered its full-year outlook.

On November 19, GPS brand Athleta opened its company-operated retail store in Yorkdale Shopping Centre in Toronto, Canada, aiming to advance the brand. However, the brand’s $2 billion net sales are not expected to be realized until 2023.

For the third fiscal quarter ended October 30, GPS’ net sales decreased 1.3% year-over-year to $3.94 billion. Net income and EPS came in at a negative $152 million, and a negative $0.40, respectively, both down 260% from the same period last year.

Although the consensus revenue estimate of $4.52 billion for the current quarter (ending January 2022) indicates a 2.2% year-over-year increase, analysts expect EPS to decrease 146.4% from the prior-year quarter to a negative $0.13 in the ongoing quarter.

The stock has declined 46.8% over the past six months and 21.6% over the past month, to close yesterday’s trading session at $17.80.

GPS’ POWR Ratings reflect this bleak outlook. The stock has a Sentiment grade of F and a Growth and Stability grade of D. In the 63-stock Fashion & Luxury industry, it is ranked #58. Click here to see the additional POWR Ratings for GPS (Value, Momentum, and Quality).

Nordstrom, Inc. (JWN - Get Rating)

JWN is a fashion retailer that is a shoe, beauty, accessories, and home goods provider. Its offerings include a range of brand names and private label merchandise that the company sells through different channels.

On November 29, Labaton Sucharow announced investigating JWN for breach of fiduciary duties and potential securities violation.

On November 18, JWN and licensed sports merchandise provider, Fanatics announced a long-term partnership for providing JWN customers with sports fan products. However, gains from this partnership might be spread over a long period.

JWN’s cost of sales and related buying and occupancy costs have increased 13.6% year-over-year to $2.29 billion. For the nine months ended October 30, the company’s net cash used in investing activities rose 29.9% from the same period last year to $378 million. Its cash and cash equivalents balance came in at $267 million, down 70% year-over-year.

Analysts expect JWN’s EPS to be negative at $0.16 in the next quarter (ending April 2022).

JWN’s stock has declined 15.7% over the past year to close yesterday’s trading session at $22.53. It has declined 21.6% over the past month.

JWN has an F grade for Sentiment and a D grade for Stability. It is ranked #51 in the same industry. To see the additional POWR Ratings for Growth, Value, Momentum, and Quality for JWN, click here.

GPS shares rose $0.07 (+0.42%) in after-hours trading Tuesday. Year-to-date, GPS has declined -16.75%, versus a 23.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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