Wall Street took another hit last week. I thought my three stocks to avoid -- Mattel, Despegar.com, and Tupperware Brands -- were going to lose to the market in the past week. They plummeted 4%, 9%, and 31%, respectively. The final result was an average drop of 14.7% for the week.
The S&P 500 moved 2.1% lower. I was right. I've been correct in 61 of the past 95 weeks, or 64% of the time.
Let's turn our attention to the week ahead. I see Dollar Tree (DLTR 0.04%), Affirm (AFRM 5.31%), and Citi Trends (CTRN 3.40%) as stocks you might want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
1. Dollar Tree
There's no point in shaking the leaves of Dollar Tree. Revenue has historically been meager but steady for the thrift-store retailer. This should be the seventh consecutive fiscal year of single-digit revenue growth.
The problem at Dollar Tree lately is the bottom line. The parent company behind Family Dollar and its namesake stores fell short of Wall Street profit targets in its fiscal first quarter three months ago. More importantly, it hosed down its full-year earnings guidance by more than just the degree of the first quarter's miss. Sales are fine, but keeping its costs in line has been a problem.
Image source: Getty Images.
Dollar Tree's bottom-line shortfall stems from two things. The retailer is naturally struggling as shoppers shift to consumables, items that carry lower mark-ups than its other products. Dollar Tree also points to higher shrinkage, basically theft, refund fraud, or other operational losses.
It's against this environment of eroding margins that Dollar Tree will step up with fresh financials on Thursday morning. Analysts are bracing for $7.18 billion in sales, the steady 6% increase that it has averaged over the past few years. The dagger is the bottom line. The market is now projecting a 46% plunge in year-over-year earnings for the fiscal second quarter. Trees provide shade, but it's OK to throw some shade Dollar Tree's way now.
2. Affirm
There was a lot of buzz for Affirm and "buy now pay later" (BNPL) stocks a couple of years ago. Investors probably should have paid then to buy later. Affirm stock has plummeted 92% from its 2021 high, and it's reporting fresh financials this week.
Affirm's business isn't humming along these days. Revenue growth has decelerated sharply over the past five quarters, going from 77% to 7% with its year-over-year top-line gains in that time. But it's not just the top line that's been a pressure point. Affirm has posted a larger-than-expected loss in three of its past four quarterly reports.
Analysts see Affirm's deficit widening when it reports on Thursday afternoon. It's more than three years away from becoming profitable, and it's apparently heading in the wrong direction. Wall Street does see revenue rising 12% in the fiscal fourth-quarter report. It would be its first quarter of accelerating revenue growth in more than a year, but with the economic outlook still cloudy and borrowing costs high, it's hard to get excited about Affirm's near-term prospects.
3. Citi Trends
The clouds are getting darker at Citi Trends. The retail chain that sells apparel, accessories, and home goods in underserved communities has been struggling lately, and it provides another potentially troubling financial update on Tuesday morning.
It will be hard to top Citi Trends' previous performance in terms of bad news. It posted a quarterly loss that was more than double the red ink the market was forecasting. It also painted a gloomy near-term outlook that had analysts scrambling to revise their estimates. Citi Trends is no longer expected to be profitable this fiscal year, and next year's target has been slashed dramatically over the past three months.
The 611-store chain is expected to see its quarterly deficit more than triple on an 11% year-over-year slide in sales for its fiscal second quarter. That's not good, and that's unfortunate. Citi Trends is an important retailer. It sets up shop in African American and multicultural neighborhoods with largely low-income families.
Many traditional retailers overlook these significant neighborhoods. Half of Citi Trends' shoppers earn $25,000 or less a year, and the absence of Citi Trends would leave a retailing void in the community. It needs to succeed, but with the stock trading lower this year -- down 17% in an otherwise rising market -- good news has been in short supply.
The stock market is always on the move. If you're looking for safe stocks, you aren't likely to find them in Dollar Tree, Affirm, and Citi Trends this week.
