4 Struggling Retailers Ripe for Big Back-to-School Deals
Some chains will probably be more desperate than others and this is where it's handy for back-to-school shoppers to learn a thing or two about reading a quarterly report. If a chain is suffering through negative comparable-store sales or a spike in unsold inventory, this should translate into aggressive markdowns to either try to turn things around or clear out items that just didn't connect with customers at original prices.
Weak stores translate into big sales. Let's see where the desperation is likely to result in markdowns this month.
It doesn't get much uglier than Aeropostale these days. The once-trendy chain is in a funk, and its stock is trading for about a buck. The typical Aeropostale store is ringing up roughly 20 percent less in sales than it was two years ago, and the chain's response has been to shut down many of its locations.
The Aeropostale empire has shrunk to 826 stores from 1,072 during the past year, including 23 locations going dark in its most recent quarter. Sluggish sales and inventory left behind from shuttered stores should make Aeropostale a great place to strike up a deal on clothing -- if your mall's location happens to still be open.
Unlike Aeropostale, Francesca's is opening more stores than it's closing. The boutique approach, whereby it stocks a limited number of units of each item, is resonating in higher-end malls. Margins have also improved over the past year at Francesca's, something that historically doesn't bode well for the deal seeker.
However, Francesca's makes the cut because it posted negative comps in its most recent quarter, and when it reports fresh financial results next week, it's expecting to post another decline in store-level sales. If it's a bad report next week, it's easy to see Francesca's getting more aggressive on pricing to woo back shoppers.
Christopher & Banks (CBK)
Another specialty women's apparel chain that should be providing generous prices is Christopher & Banks. It shocked the market a couple of weeks ago by announcing that comparable-store sales took a 12.4 percent year-over-year drop in its latest quarter. It also sees gross margins declining, something that loosely translates into lower markups on its merchandise.
That's bad news for its investors, but great news for its customers. Christopher & Banks recently hired a consultant to help turn things around, and it will shed some light on its situation when it reports quarterly results next week. Any dramatic makeovers will likely be accompanied by big clearance sales.
It's not just clothing on sale. Williams-Sonoma -- the company behind Pottery Barn and West Elm as well as its namesake housewares concept -- saw its stock take a 9 percent hit last week after posting mixed quarterly results.
Sales were healthy, but margins were weak, suggesting that Williams-Sonoma continues to struggle to justify bigger markups on its wares. It's still holding up better than the first three companies on this list, but it makes the cut if we drop down from the income statement to its balance sheet.
Merchandise inventories have risen 15.3 percent during the past year, even though net sales have only climbed 8.5 percent higher. Seeing inventory growing nearly twice as fast as revenue can be problematic for investors, as it often results in stores having to mark down older merchandise to clear up space.
Enjoy chasing the deals, fellow back-to-school shopper.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. Looking for a winner for your portfolio? Check out The Motley Fool's one great stock to buy for 2015 and beyond.