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The year has drawn to a close, and with it, a bevy of lists details the best and worst of everything from albums to cat videos to stock performances. Since The Motley Fool doesn't cover cat videos, here's a look at three of the worst-performing retail stocks of 2013.
J.C. Penney (NYSE: JCP ) and lululemon athletica (NASDAQ: LULU ) made the list due to having spectacularly bad years that included CEO replacements and inventory issues. Aeropostale's (NYSE: ARO ) problems were more mundane but also have the greatest potential to stretch on into the future.
What led these companies to share losses in 2013? And will 2014 prove any brighter?
J.C. Penney reverses course
Shares for the century-old retail chain dropped more than 50% in 2013 as the company abandoned its turnaround strategy midstream. J.C. Penney had hired Apple's Ron Johnson in late 2011 to breathe new life into slumping sales. But Johnson's vision of store-within-a-store modules flanked with interactive technology, and his retraction of the company's notoriously generous coupon handouts, didn't deliver a quick shopper influx.
Johnson stepped down in the spring of 2013 -- causing shares to momentarily bump up 12% -- and former CEO Myron Ullman returned. J.C. Penney finds itself in an inventory bind as the company is forced to increase stock to undo some of Johnson's least-popular merchandising strategies while also having to resort to markdowns to move out older inventory.
For the fourth quarter, analysts estimate that J.C. Penney will report revenue of $4 billion and a loss per share of $0.71. J.C. Penney has missed revenue estimates in three of the past five quarters and missed earnings-per-share estimates for all five. Analysts expect full-year revenue of $12.1 billion and a net loss of $5.64 per share.
Lululemon's bad news piles up
Shares of athletic-apparel company lululemon athletica fell more than 22% in 2013 as the company suffered a series of missteps. Lululemon's bad year started with the recall of a popular style of yoga pants due to material sheerness. But the problems compounded when founder and then-chairman Chip Wilson blamed subsequent fabric problems on customers' bodies.
Wilson has a history of making controversial comments, but the new batch came at a particularly bad time since Lululemon was hunting for a new CEO. Former CEO Christine Day announced in June that she would leave the company as soon as a replacement was found. Shares dropped 18% upon Day's announcement.
But Lululemon recovered a bit as the year drew to a close. Chip Wilson stepped down as board chairman and former Burton Snowboards head Laurent Potdevin was announced as the new CEO.
Analysts estimate that Lululemon will report fourth-quarter revenue of $540 million with EPS of $0.79. Lululemon has beat revenue and EPS estimates for the past five quarters. Analysts estimate full-year revenue of $1.6 billion and EPS of $1.95.Both numbers fall within Lululemon's own forecast for the year.
Aeropostale falling off trend?
Aeropostale's slump began before the start of 2013, but the first-quarter report featured the company's first revenue loss in a decade. Shares were down nearly 30% year to date by the last week of the year as the company's heavy promotion push didn't translate to higher comps.
Compared to the other entrants on this list, Aeropostale's decline was for rather run-of-the-mill reasons. Shoppers simply stopped showing up to spend money. Retail traffic was particularly slow in the third quarter for all retailers, and Aeropostale's comps were down 15% compared to the prior year.
But Aeropostale wasn't the only teen-oriented retailer hitting a slump. Abercrombie & Fitch shares were down 29% this year and American Eagle Outfitters dropped nearly 28%. All three retailers target a young, often cash-strapped demographic that's seemingly turning away from the preppy, brand-name-emblazoned styles. And winning back a fickle customer base isn't an easy task.
Analysts estimate Aeropostale will report full-year revenue of $2.1 billion and a loss per share of $1.09. Those figures would represent a 13% revenue drop, year over year, and a 60% EPS drop.
Foolish final thoughts
How will these retail stocks perform in 2014? J.C. Penney's path forward depends on whether the inventory turnover rate will improve once the restocking effort is complete. Investors will watch Lululemon to see how the new CEO settles into his role -- and whether Chip Wilson can really stay in the background. Aeropostale has a more abstract path ahead that largely depends on whether the store can sufficiently alter inventory to attract customers without margin-busting markdowns.
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