Most consumer discretionary businesses succeed or fail based on the broader economy. This sensitive demand profile can cause discretionary stocks to plummet when macro uncertainty enters the fray, and over the past six months, the industry has shed 10.6%. This drawdown was worse than the S&P 500’s 4.8% decline.

Investors should tread carefully as many companies in this space are also unpredictable because they lack recurring revenue business models. On that note, here are three consumer stocks that may face trouble.

Caleres (CAL)

Market Cap: $351.5 million

The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.

Why Should You Dump CAL?

1. Annual revenue growth of 5.4% over the last five years was below our standards for the consumer discretionary sector
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $10.38 per share, Caleres trades at 6.8x forward P/E. Check out our free in-depth research report to learn more about why CAL doesn’t pass our bar.

VF Corp (VFC)

Market Cap: $6.32 billion

Owner of The North Face, Vans, and Supreme, VF Corp (NYSE: VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.

Why Do We Steer Clear of VFC?

1. Weak constant currency growth over the past two years indicates challenges in maintaining its market share
2. Poor free cash flow margin of 4.4% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

VF Corp is trading at $16.16 per share, or 16.7x forward P/E. If you’re considering VFC for your portfolio, see our FREE research report to learn more.

Brunswick (BC)

Market Cap: $4.53 billion

Formerly known as Brunswick-Balke-Collender Company, Brunswick (NYSE: BC) is a designer and manufacturer of recreational marine products, including boats, engines, and marine parts.

Why Should You Sell BC?

1. Lackluster 4.3% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Free cash flow margin is not anticipated to grow over the next year
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Brunswick’s stock price of $69.58 implies a valuation ratio of 16.7x forward P/E. To fully understand why you should be careful with BC, check out our full research report (it’s free).

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