2 Retail Stocks to Avoid as Consumer Spending Slows with Rising Inflation

Despite achieving solid growth in the first half of 2021, December 2021 was gloomy for the retail sector. With inflation surging to 40-year highs, and supply chain bottlenecks, retail sales decreased 1.9%, which was significantly worse than Dow Jones’ estimate of a 0.1% decline.

The retail industry’s dismal performance is predicted to linger for a while because the global logistical gridlock has  yet to be ameliorated. Moreover, with new covid cases piling up every day, consumer pessimism is apparent. According to the University of Michigan, consumer sentiment declined  this month to 68.8–the second-lowest level in a decade.

Given this backdrop, we think it could be wise to avoid significantly overvalued retail stocks V.F. Corporation (VFC) and Allbirds, Inc. (BIRD) now.

V.F. Corporation (VFC)

VFC in Greensboro, N.C. designs, produces, procures, markets, and distributes branded lifestyle apparel, footwear, and related products for men, women, and children in the Americas, Europe, and the Asia-Pacific. It operates through three segments: Outdoor; Active; and Work.

VFC’s net revenues increased 22.6% year-over-year to $3.2 billion for its fiscal second quarter, ended September 2021. However, its cash and cash equivalents came in at $1.36 billion for the period ended September 2021, compared to $1.88 billion, for the period ended September 2020. Also, its total current liabilities were  $3.38 billion, versus $2.08 billion for the same period. The company’s total costs and operating expenses also increased 15.4% year-over-year to $2.64 billion.

In terms of forward EV/S, VFC’s 2.79x is 112.8% higher than the 1.31x industry average.  Moreover, its 2.31x forward P/S  is 104.4% higher than the 1.13x industry average.

Over the past year, VFC has declined 14.1% in price to close yesterday’s trading session at $70.41.

VFC’s POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. VFC has a D grade for Sentiment. Click here to access the additional POWR Ratings for VFC (Momentum, Growth, Value, Stability, and Quality). The stock is ranked #58 of 64 in the Fashion & Luxury industry.

Allbirds, Inc. (BIRD)

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

BIRD’s net revenue increased 32.7% year-over-year to $62.71 million for the third quarter, ended Sept. 30, 2021. However, its net loss came in at $13.8 million, versus $7 million in the previous period. Also, its loss per share was$0.25, compared to $0.13 in the year-ago period. And its loss from operations was  $11.88 million, compared to $7.23 million in the prior period.

In terms of forward EV/S, BIRD’s 7.86x is 498.4% higher than the 1.31x industry average. Furthermore,  its 7.45x forward P/S is 558.6% higher than the 1.13x industry average.

Analysts expect BIRD’s EPS to remain negative in its fiscal 2022. And its EPS is estimated to decrease 15.2% per annum for the next five years. Over the past month, the stock has declined 4.3% in price to close yesterday’s session at $13.83.

BIRD’s POWR Ratings reflect its poor prospects. The stock has an overall F grade, which equates to a Strong Sell in our POWR Ratings system. BIRD has an F grade for Value and Sentiment and a D grade for Growth, Stability, and Quality. Click here to access all the BIRD ratings. Within the Fashion & Luxury industry, BIRD is ranked last.

VFC shares were trading at $67.16 per share on Thursday afternoon, down $3.25 (-4.62%). Year-to-date, VFC has declined -8.28%, versus a -5.31% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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