Retailers are adapting their business models as technology changes how people shop. One initiative that has proven effective is the expansion into e-commerce, which has helped the industry sustain its same-store sales growth and keep pace with the S&P 500’s 7.5% return over the past six months.

Regardless of these results, a cautious approach is imperative as many companies in this space can be value traps. Keeping that in mind, here are three consumer stocks that may face trouble.

Macy's (M)

Market cap: $6.46 billion

With a storied history that began with its 1858 founding, Macy’s (NYSE: M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Why Are We Bearish on M?

1. Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
2. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
3. Earnings per share have dipped by 10.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term

At $24.64 per share, Macy's trades at 11.2x forward P/E. To fully understand why you should be careful with M, check out our full research report (it’s free).

Sally Beauty (SBH)

Market cap: $1.71 billion

Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.

Why Should You Sell SBH?

1. Lack of new stores suggest it’s attempting to increase revenue at existing locations because demand is sluggish
2. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
3. Smaller revenue base of $3.73 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

Sally Beauty is trading at $18.22 per share, or 7.9x forward P/E. Dive into our free research report to see why there are better opportunities than SBH.

Warby Parker (WRBY)

Market cap: $3.04 billion

Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.

Why Are We Wary of WRBY?

1. Smaller revenue base of $911.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
3. Push for growth has led to negative returns on capital, signaling value destruction

Warby Parker’s stock price of $24.59 implies a valuation ratio of 50.7x forward P/E. If you’re considering WRBY for your portfolio, see our FREE research report to learn more.

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