With recession fears on the rise, now might be a good time to consider the top retail stocks to sell in 2023. Indeed, with retail buyer’s consumption patterns shifting, many investors are beginning to take a step back. The macroeconomic landscape is not what it was pre-pandemic, and consumers are spending less on non-essentials and more on housing, shelter and food.
Retailers are still experiencing supply chain concerns and slower demand, which is heavily affecting their sales growth and bottom line. Other major concerns include inflation, higher interest rates and a general slowdown in economic activity. This macroeconomic backdrop is being reflected in retail stocks’ earnings results and FY 2023 guidance.
Below are my top three retail stocks to sell right now.
Macy’s (NYSE:M) business is facing a number of challenges in 2023, and over the last decade, the company has seen mixed results.
The retail sector is under attack, and consumers are being more cautious about how and where they spend their dollars. In Macy’s Q2 2023 earnings results, net sales and comparable sales were down 9.3% and 8.2%, respectively, year over year (YOY).
Over the past decade, Macy’s top-line growth and profit has been trending in the wrong direction. Revenue for FY 2022 was flat, with earnings per share (EPS) down 8% year-over-year. The business is having a hard time growing, and revenues are projected to see further declines.
Macy’s revised its FY 2023 guidance, with net sales in the $22.8 billion to $23.2 billion range. This represents a 6-7% decline YOY. Its guidance for EPS remained unchanged. However, it is reflecting a decline of more than 30% YOY.
There is nothing to get excited about Macy’s future growth in the beauty and apparel business. Low margins and a continuous decline in earnings are highlighting that something is not working. A challenging macroeconomic environment also won’t help, as the company veers to focus on increased cost savings going into 2024.
Make no mistake, Macy’s glory days are over. Investors should sell the stock in 2023.
Best Buy (BBY)
Best Buy (NYSE:BBY) stock is down nearly 15% YTD, and more pressure on its business may be ahead.
During the Covid-19 pandemic, the company enjoyed a favorable macroeconomic environment. U.S. disposable income and personal savings rate were at record highs in 2020 and early 2021. This was largely driven by the Federal Reserve’s fiscal stimulus, in which $3 trillion was printed in 2020 alone.
Best Buy saw some of its best earnings quarters in its history, with the stock hitting a record high in late 2021. However, the dance eventually came to an end, driven by record high inflation and higher interest rates in 2022.
While the stock may look cheap right now, more pain might be ahead. In Q2 fiscal 2024, total revenue and EPS were each down roughly 7%.
The company remains in good financial shape, but that might not be enough if interest rates move higher. Global demand for consumer electronics has softened in 2023, and demand in 2024 may be even worse. The likelihood of stagflation and interest rates remaining “higher for longer” is bad news for the consumer electronics business.
Best Buy has cut its FY 2024 sales guidance to $43.8 billion-$44.5 billion, from $44.3 billion-$45.2 billion. Comparable sales are expected to decline between 4.5% and 6% YOY.
With recession fears on the rise, Best Buy’s is among the top retail stocks to sell going into 2024.
Walgreens Boots Alliance (WBA)
While the company has been on a steady decline from its all-time highs back in 2015, the stock saw increased investor demand in 2020. The pandemic-induced bubble drove increased consumer demand for its products, leading to significant YOY improvements in its top and bottom lines.
Net income for FY 2021 surged more than 450% to $2.54 billion. EPS was also up to $2.93, a more than 400% increase. However, the tide would begin to turn as revenue would remain flat for 2022.
What may have been the precursor was Walgreens’ precipitous fall in operating income, down 41% YOY. The company is also dealing with a challenging macroeconomic environment as interest rates rise.
In its recent Q3 2023 earnings results, then-CEO Rosalind Brewer highlighted that “a more cautious and value driven consumer led to weaker margins.’’ But investors should not just be concerned about weaker margins, as Walgreens’ long-term growth prospects remain abysmal.
Walgreens is operating in an extremely competitive pharmacy care business. Its VillageMD synergy might not be enough to compete with CVS Health’s (NYSE:CVS) Aetna.
The company’s restructuring has also had a material impact on EPS growth, which fell 58% in the quarter. Walgreens has also decreased its FY 2023 EPS guidance by 10% to $4-$4.05.
As margin pressures continue and profitability challenges rise, Walgreens is one of the top retail stocks to sell for 2023.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.