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

3 colorful arrows racing straight up on a black background.
Investing

1 Canadian Stock Ready to Surge Into 2025

Canadian Natural Resources (TSX:CNQ) stock is a sleeping dividend giant that may be about to wake up.

Read more »

Tractor spraying a field of wheat
Investing

Is Nutrien Stock a Buy for its 4.7% Dividend Yield?

Nutrien (TSX:NTR) is a well-known defensive commodities play. But is this stock worth buying for its dividend yield alone?

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

Paper Canadian currency of various denominations
Investing

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

Do you have some extra cash to spare? Here are three Canadian stocks to add to your watch list today.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, November 22

Continued gains in gold, oil, and natural gas prices could give the commodity-focused TSX benchmark a boost at the opening…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »