3 Consumer Stocks in Hot Water

Retailers are overhauling their operations as technology redefines the shopping experience. Still, demand can be volatile as the industry is exposed to the ups and downs of consumer spending. This has stirred some uncertainty lately as retail stocks have tumbled by 12.5% over the past six months. This drawdown was particularly disheartening since the S&P 500 held its ground.

While some companies have durable competitive advantages that enable them to grow consistently, the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three consumer stocks that may face trouble.

Tilly's (TLYS)

Market Cap: $36.79 million

With an emphasis on skate and surf culture, Tilly’s (NYSE:TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Why Do We Steer Clear of TLYS?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Performance over the past six years shows each sale was less profitable as its earnings per share dropped by 25.9% annually, worse than its revenue
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Tilly’s stock price of $1.21 implies a valuation ratio of 0.1x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than TLYS.

OneWater (ONEW)

Market Cap: $249.3 million

A public company since early 2020, OneWater Marine (NASDAQ:ONEW) sells boats, yachts, and other marine products.

Why Does ONEW Fall Short?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Earnings per share have contracted by 54.5% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $14.91 per share, OneWater trades at 8.3x forward P/E. Check out our free in-depth research report to learn more about why ONEW doesn’t pass our bar.

Sleep Number (SNBR)

Market Cap: $195.3 million

Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ:SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.

Why Do We Pass on SNBR?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Sales are projected to tank by 4.6% over the next 12 months as demand evaporates further
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Sleep Number is trading at $8.65 per share, or 1.9x forward EV-to-EBITDA. If you’re considering SNBR for your portfolio, see our FREE research report to learn more.

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