2 Retail Stocks Below $10 to Avoid in 2019

Roots Corp. (TSX:ROOT) and Hudson’s Bay Co. (TSX:HBC) stocks have had a horrendous 2018, and the future does not seem bright.

| More on:
The Motley Fool

Statistics Canada released its retail trade numbers for August 2018 on October 19. Retail sales dropped 0.1% to $50.8 billion in August after a 0.2% rise in July. The 2% decline in sales at gasoline stations was largely behind the retreat. Gas prices have dropped precipitously in the months since, which has the potential to offset the usual gains in retail sales in the holiday months.

Clothing and clothing accessories stores experienced a 1.2% drop in activity from July to August. Clothing retailers have posted 3.2% growth year over year. Today we are going to look at two Canadian retailers that have struggled mightily in 2018. It may be enticing to buy on the dip in late 2018, but investors may want to think twice before exploring this option. Let’s explore why.

Roots (TSX:ROOT)

Roots stock has suffered a steady decline since it reached an all-time high of $13.55 in early May. Shares are down over 65% since the peak. The stock has shed another 23% over the past month as of close on November 22. Back in late October, I’d warned investors to stay away from Roots. The stock sits at $4.40 as of close on November 22.

Roots released its second-quarter results on September 12. Adjusted EBITDA fell to $32,000 compared to $1.3 million in the prior year. Basic loss per share also grew to $0.10 per share over $0.08 per share in the second quarter of 2017.

President and CEO Jim Gabel conceded that negative store traffic was a concern heading into the third quarter, while on the positive end Roots did post improvements in its e-commerce business. Still, this trend has emerged across all sectors in retail. Retail e-commerce sales experienced 13.9% growth across Canada from August 2017 to August 2018.

Hudson’s Bay (TSX:HBC)

Hudson’s Bay stock had dropped 31.3% in 2018 as of close on November 22. Shares have plunged over 60% over a three-year span. The company has been mired in an internal battle that has pitted management against shareholders over the future of the company. Land and Buildings Investment Management has pushed for the company to monetize its real estate holdings and gradually scale back retail operations. The departure of retail veteran Jerry Storch as CEO seemed to signal that this faction had won the battle.

Hudson’s Bay reported a second-quarter loss of $147 million in early September, worse than the $100 million loss posted in the prior year. Comparable sales in its department store group fell 3.8%, and sales at Saks OFF 5th dropped 7.6%. The company has moved to sell at least 10 more Lord & Taylor stores, including its Manhattan flagship to Softbank-based WeWork Cos. in 2017.

Hudson’s Bay is in dangerous territory as we look ahead to 2019, and economic headwinds could deal even more damage to retailers in the coming quarters. Both of these stocks are too volatile to touch even at present-day low prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Arrowings ascending on a chalkboard
Dividend Stocks

The 5.5% Dividend Stock Set to Dominate the TSX

TD Bank (TSX:TD) stock looks severely undervalued while the yield is around 5.5%.

Read more »

protect, safe, trust
Dividend Stocks

Passive Income: How to Earn Safe Dividends With Just $10,000

These three dividend stocks with resilient business models and a growing earnings base can provide durable passive income.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

1 of the Best Canadian AI Stocks (With Dividends) to Buy Now

OpenText is an AI stock that trades at a significant discount to consensus price target estimates in June 2024.

Read more »

woman analyze data

The Best Stocks to Invest $2,000 in Right Now

For investors seeking the best stocks to buy for an opportunity to generate life-changing wealth, here are three options to…

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

How to Use Your TFSA to Earn $34,150 Per Year in Tax-Free Income

Canadian investors can hold undervalued TSX dividend stocks in a TFSA and benefit from outsized gains 2024 and beyond.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, June 20

After surging to fresh record highs last month, the TSX Composite benchmark currently trades at its lowest level since February…

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Monthly-Paying Dividend Stocks That Are Screaming Buys Right Now

These three monthly-paying dividend stocks are excellent additions to your portfolios.

Read more »

A bull outlined against a field
Stocks for Beginners

Top 5 Sectors to Watch in a Bullish Market

Do you want growth in a bull market? These aren't just the sectors to watch but the stocks that should…

Read more »