S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94
S&P 500   4,471.37
DOW   35,294.76
QQQ   368.94

The Next 5 Retailers on the Edge of Bankruptcy

Posted on Monday, June 1st, 2020 by MarketBeat Staff
The Next 5 Retailers on the Edge of BankruptcyThrough no fault of theirs, the novel coronavirus has put some retailers on the edge of bankruptcy. And as you’ve seen, many have fallen over that edge including iconic names like Nieman Marcus, J.C. Penney and J.Crew.

In fact, according to the American Bankruptcy Institute, there were 560 commercial Chapter 11 filings in April. That was a 26% increase over last year. And executive director, Amy Quakenboss, suggests that there are more to come.

“As financial challenges continue to escalate amid this crisis,” observes Quakenboss, “bankruptcy is sure to offer a financial safe harbor from the economic storm.”

With no revenue walking through the door, many retailers are seeing a semblance of revenue from e-commerce sales. But for some retailers, the shutdown is more impactful because they didn’t have a strong e-commerce structure. That means that they rely more than others on brick-and-mortar sales.

The real question now is will there really be the pent-up demand that some analysts still swear is just waiting to be unleashed. It may indeed exist. Time will tell. But time is not a commodity many of these retailers have. And we’ve identified five retailers for which the clock is not in their favor.

#1 - Nordstrom (NYSE:JWN)

Nordstrom logo

Relying on additional stimulus is not a plan. But that’s the reason why some analysts felt Nordstrom (NYSE:JWN)stock was on the rise after delivering a stinker of an earnings report. On May 28, Nordstrom reported earnings per share of ($2.23). This was far below analysts’ estimates of ($1.07).

Nordstrom also delivered $2.03 billion in revenue, short of analysts’ estimates for $2.27 billion. That was down 39.5% on a year-over-year basis. And net sales fell 40% during the quarter. The losses were across the board. Full-price department stores posted a decline of 36% while sales at the company’s Nordstrom Rack division were down 45%.

One bright spot was an increase in e-commerce sales, which increased by 5%, to reach $1.1 billion. And the company is opening stores. Nordstrom says approximately 40% of its stores are now back open for business. The company intends to be fully open by the end of June, including opening the company’s flagship store in New York City.

But with social distancing guidelines in place, it’s hard to tell how much that will help sales. A more difficult question to ask is if consumers will have the confidence to spend on luxury merchandise. That’s where some analysts think the off-price Nordstrom Rack and Trunk Club businesses will be a lifeline for the company.

Nordstrom is confident that having $1.4 billion in cash on hand at the end of the first quarter will be repurchases, there’s not much reward to go along with the risk of owning the company’s stock. That could keep value investors away.

And growth investors have to be a little concerned over the $1.4 billion that the company added in secured debt ($600 million) and by drawing down on its revolver ($800 million).

About Nordstrom
Nordstrom, Inc engages in the manufacture and trade of clothes, shoes, and accessories. It operates through Retail; and Corporate/Other. The Retail segment comprises selection of high-quality, brand-name, and private label merchandise, which includes apparel, shoes, cosmetics, and accessories for women, men, young adults, and children.Read More 

Current Price: $28.08
Consensus Rating: Hold
Ratings Breakdown: 3 Buy Ratings, 4 Hold Ratings, 3 Sell Ratings.
Consensus Price Target: $36.36 (29.5% Upside)


#2 - Macy's (NYSE:M)

Macy

While it’s understandable and not particularly surprising considering the unprecedented conditions facing the industry, Macy’s (NYSE:M) announced early in May that it was going to delay its earnings report until July 1. The company did plan on sharing preliminary data sometime before June 9.

In its Securities & Exchange Commission (SEC) filing, Macy’s claims the delay is due to disruption in the company’s “routine quarterly close process.” Macy’s shares have dropped more than 68% in 2020 and the retailer says it expects to incur a goodwill impairment charge during the first quarter because of declining market value.

Macy’s has been able to reopen stores. As of this writing, the company had opened 68 locations and was expecting to be fully open in six to eight weeks. In an interview on April 30, CEO Jeff Gennette said Macy’s was well into the financing process to raise debt including pulling down its full $1.5 billion credit revolver.

“We are confident that new financing will be in place before we need it, allowing us to extend our financial flexibility over both the short- and long-term,” Gennette said. But like other retailers a lot of this is out of the company’s hands. If consumer spending doesn’t return, Macy’s will need a real life Miracle on 34th Street to stave off bankruptcy.

About Macy's
Macy's, Inc engages in the retail of apparel, accessories, cosmetics, home furnishings, and other consumer goods. The firm's brands include Macy's, Bloomingdale's, and Bluemercury. It offers men's, women's, and children's apparel, women's accessories, intimate apparel, shoes, cosmetics, fragrances, as well as home and miscellaneous products.Read More 

Current Price: $24.04
Consensus Rating: Hold
Ratings Breakdown: 6 Buy Ratings, 3 Hold Ratings, 4 Sell Ratings.
Consensus Price Target: $24.10 (0.2% Upside)


#3 - GNC Holdings (NYSE:GNC)

GNC logo

While Nordstrom’s and Macy’s may have a longer runway, the same can’t be said for GNC Holdings (NYSE:GNC). The food supplements company got a little reprieve when it managed to extend payment terms with some of its lenders. But with a stock price that was sitting below $1 per share as of this writing, it’s clear that GNC needs to do something to improve its equity situation.

In a statement, GNC said, “The company continues to explore all strategic options available to it to refinance and restructure its debt to drive business continuity and protect the long-term financial interests of the company and the interests of the company’s key stakeholders.”

Some analysts were already forecasting that GNC would have to enter bankruptcy before it restructured its debt. And even though it looks like the company has avoided that outcome for now, it still faces a challenging future. In their most recent earnings report, CEO Ken Martindale said that the company has furloughed 3,800 workers despite 100 stores reopening. Approximately 200 workers at the company headquarters were also laid off through May.

And like many retailers, GNC did not enter this shutdown in a position of strength. The company was already looking to shutter 900 stores, mostly those in malls. However, Martindale is now saying the company would close a “significant number” of more stores than it announced last year.

If the company has one silver lining it’s the fact that gyms are beginning to reopen. If customers begin returning to gyms it may be the impetus for them to get back to taking their food supplements.

About GNC
GNC Holdings, Inc, together with its subsidiaries, operates as a specialty retailer of health, wellness, and performance products. The company operates through three segments: U.S. and Canada, International, and Manufacturing/Wholesale. Its products include proteins, performance supplements, weight management supplements, vitamins, herbs and greens, wellness supplements, health and beauty products, food and drink products, and other general merchandise.Read More 

Current Price: $0.00
Consensus Rating: N/A
Ratings Breakdown: 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: N/A


#4 - Ascena Retail Group (NASDAQ:ASNA)

Ascena Retail Group logo

It’s not a good sign when a company says it is “weighing all options” to stay afloat. They may as well as just say they’re filing for bankruptcy. But so far, that’s not the message that Ascena Retail Group (NASDAQ:ASNA) is sending to investors. At least not directly.

However, with the company recently executing what the S&P Ratings deem a “selective default” by purchasing some of its debt at below-par prices, the company’s credit rating was dropped to CCC-.  Essentially, analysts are expecting a default within the next six months.

Ascena recently adopted a tax benefits preservation plan which is a veiled attempt to hold off a hostile takeover that would allow the acquirer to use the company’s tax-loss carry forwards.

Like all retailers, the company’s business is in disarray as many of its signature Ann Taylor, Loft, and Lane Bryant stores have yet to open. The particular obstacle for Ascena is that many of its brands are tailored to the working professional. As many of those professionals may be choosing or required to work from home, the definition of office casual will be a direct assault on the company’s business.

Ascena’s stock is down 83% year to date.

About Ascena Retail Group
Ascena Retail Group, Inc engages in the retail of apparel for women, and tween girls. It operates through the following segments: Premium Fashion, Value Fashion, Plus Fashion, and Kids Fashion. The Premium Fashion segment consists of products under Ann Taylor and LOFT brands. The Value Fashion segment includes the Dressbarn brands.Read More 

Current Price: $0.00
Consensus Rating: N/A
Ratings Breakdown: 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: N/A


#5 - Gap (NYSE:GPS)

The Gap logo

Gap (NYSE:GPS) is an iconic name with a big problem. Gap made its name as a favorite of mall rats, a demographic that no longer exists. In the world of e-commerce, Gap is just another name. And with many consumers likely to hold off on discretionary spending, Gap faces perhaps a larger crisis than most retailers. They not only have to increase sales, but they also have to do so by bringing those consumers into malls.

What is going to make that crisis even more challenging is that it will have to do it with a very low margin for error. The company can absorb just a -9% revenue decline before its operating income will fall to zero (i.e. break-even). If it takes until the fourth quarter for demand to come close to bouncing back (and that’s a big if), Gap may be on pace to lose $150 million or more in cash. At this time, it has enough cash on hand to absorb that, but if demand falls to zero, that runway becomes much shorter.

GPS stock is down over 50% for the year

About The Gap
Gap, Inc operates as a global apparel retail company, which offers clothing, apparel, accessories, and personal care products for men, women, and children. The firm operates through the following segments: Gap Global, Old Navy Global, Banana Republic Global, Athleta, and Other. The Gap Global segment includes apparel and accessories for men and women under the Gap brand, along with the GapKids, BabyGap, GapMaternity, GapBody, and GapFit collections.Read More 

Current Price: $22.14
Consensus Rating: Hold
Ratings Breakdown: 6 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $33.41 (50.9% Upside)

 

The outlook for retail for the rest of 2020 comes down to having a consumer that is willing to spend. For many retailers, a slow but steady recovery may be enough to protect them from having to file for bankruptcy protection. But, there is growing uncertainty about both the speed and the consistency of the recovery.

On the one hand, recent personal savings numbers show that consumers will have the cash to spend if they want. But therein lies the challenge. U.S. consumer spending was down 13.6% in March. And this was despite the PCE Price Index barely rising. The reality for many Americans is that there is very limited room for discretionary spending.

Plus, while the rate of new jobless claims may be declining, that doesn’t mean we won’t see the overall count go higher. With 40 million Americans now filing for and/or receiving unemployment, the idea of a “V-shaped” recovery is largely seen as a myth.

This is a paradox for retailers. There is a lot of money to be spent and it seems that there may not be an appetite to spend it, at least not in conventional brick-and-mortar locations. The five companies in this presentation do not have a strong e-commerce presence and don’t fit the traditional omnichannel model that is defining the future of retail. And for this reason, they may have staved off bankruptcy for now, but all of them face significant challenges to not be the next J.C. Penney or J.Crew.

7 Stocks That Can Help You Profit From Summer Shortages

One of the lingering impacts of the Covid-19 pandemic is the supply chain disruptions that continue to bedevil many sectors. By now, every investor is aware of the global chip shortage that is disrupting many sectors that were projected to have strong growth in 2021.

But there are many more sectors that are being affected by supply chain disruptions. And this affects everything from big-ticket items like cars to everyday items like pet food and even bacon.

The focus of this special presentation is seven companies that stand to benefit from the current disruption in the supply chain. All of these companies delivered strong gains in 2020. Some of them have weakened in 2021, but that was before the full extent of the supply chain weakness was discovered.

As the economy reopens, the shortage of items is likely to continue and become much more notable. When they do, many of these stocks may get overpriced. That’s why now is the time to get in on these stocks that can help you work the supply chain in your favor.

View the "7 Stocks That Can Help You Profit From Summer Shortages" Here.





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