5 Stocks That May Decline Over Weak June Sales

Includes: BKE, COST, KSS, M, TGT
by: Stock Croc

Retail stores have announced their June sales numbers, and this has caused a great deal of disappointment from investors. In this article, I will address the June sales reports of five retail companies and how the stocks appear, given this new information. Kohl's (KSS), Target (TGT), Costco (COST), Macy's (M), and Buckle (BKE) have all experienced weak June sales numbers. Some are in better positions than others. At the moment, however, I would be hesitant to recommend most of them.

Kohl's stock is currently trading around $47 and has actually been increasing since it reported its June sales numbers. Its 52-week low is $42.14, and its 52-week high is $57.39, so there is plenty of room for growth in the stock. Its price/book ratio is 1.70.

Kohl's reported that its June sales dropped by 2.6%, but it also noted that comparable stores had a 4.2% decrease. Kohl's does appear to be doing better than average, therefore, and it has another reason to be optimistic as well. Its chairman, Kevin Mansell, pointed to the better sales in the later parts of June. Mansell said, "We are encouraged by improved sales in the latter weeks of the month as we continued to build inventory levels." It is not surprising that Kohl's stock is on the rise, therefore, as it is showing signs of strength in an industry where many are struggling. Of all the stocks I am reviewing in this article, this would be the one that I would most recommend.

Target is currently trading around $57, and it has not moved much since the beginning of June. It is near its 52-week high of $59.40, and it is a long way from its 52-week low of $45.28. Its price/book ratio is 2.41.

Unlike Kohl's, Target actually increased its total sales in stores open for at least one year. This fell short of expectations though. While analysts anticipated an increase of 2.4%, the actual increase was only 2.1%. While a sales increase is still good news, investors expected the company to be doing better. I do not think this will cause great movement in the stock price, as this is somewhat minor. With the stock being so close to its 52-week high and with things starting to look a little worse for the company, I would not recommend investing in Target stock at the moment.

Costco stock is currently trading around $94, and it has been dropping a little after rising from its price of $86.00 at the beginning of June. It just reached its 52-week high of $95.55 on July 2, and it is far from its 52-week low of $70.22. Its price/book ratio is 3.25. With a little bit of bad news, this does not seem like a good investment at the time.

Costco is experiencing a problem that is similar to Target's, as its June same-store sales numbers rose, but missed the analysts' forecasts. June same-store sales increased by 3% for Costco, but analysts anticipated an increase of 3.7%. This is the fourth consecutive month that Costco has fallen short of these forecasts. Analyst John Heinbockel noted, "These results reflect both a negative calendar shift in the U.S. and the impact of the strengthening dollar, particularly against the Canadian dollar and the Mexican peso." Analysts included foreign exchange, however, so I think this explanation is a bit lacking. Costco stock has been doing well despite missing past forecasts, but I think it will be done with this, especially considering how expensive the stock is now. With this in mind, I do not recommend investing in Costco stock.

Macy's stock is currently trading around $34, and it has largely been moving away from its 52-week high of $42.17 since May 2. It still has a ways to go before reaching its 52-week low of $22.66 though. Its price/book ratio is 2.28. While it has risen a little since announcing its sales numbers, I do not expect this to stop Macy's stock from decreasing in price.

Macy's reported that June same-store sales increased by 1.2%. It is in a similar position as Target and Costco, however, as Macy's missed the estimated 2.3% increase. This should not have such a positive effect on the stock, therefore, but there is a related event that may help turn this negative announcement around. In the month of June, fewer Americans filed for first-time unemployment insurance payments than expected. Companies also added more to the work force than expected, so the economy is looking a little stronger. Macy's reported that the poor economy was one of the main causes of weaker sales numbers, so this event may help change people's minds about the store.

I think this is a poor explanation from Macy's, however, especially since it missed its estimated sales by more than Target or Costco. A good sign for the economy is certainly good news for retail stores, but I do not believe this is something that will save Macy's. It still has some ground to make up, and despite its initial increase, I think its stock price will continue falling closer to the 52-week low. As a result, I do not recommend investing in Macy's at the moment.

Buckle is currently trading around $38, and it has been falling after announcing its June sales. Its 52-week high is $50.00, which it reached on March 13, and its 52-week low is $33.97. Its price/book ratio is 4.72. I think the stock price will likely continue to fall closer to its 52-week low, especially with some bad news with its June sales.

Buckle may be in the worst position, as its June sales missed estimates and decreased. Analysts expected the sales numbers to remain consistent for Buckle, neither increasing nor decreasing. Unfortunately, the company reported a 2.5% drop, which corresponding with a fall in the stock price. Some other retail companies have reported increases, and Kohl's had good news to offset its decreased sales. Of the five stocks I am addressing in this article, therefore, I believe Buckle is the worst one, and I would not recommend investing in it.

While I think Buckle may be the worst of these five stocks, the others do not look particularly promising at the moment either. Macy's has largely been on a downward trend over the past two months, and it missed its sales estimate by a fairly large amount. Target and Costco are fairly expensive at the moment, and they missed their sales estimates as well. Despite reporting a decrease in June sales, I believe Kohl's is the best of these five stocks. It saw improvement at the end of June, and it is doing better than its competitors. It is not very expensive at the moment, so it has plenty of room to rise. I recommend Kohl's stock as a result, but I do not recommend any of the other four stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.