Retailers are adapting their business models as technology changes how people shop. 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 13.7% over the past six months. This performance was worse than the S&P 500’s 5.5% loss.

A cautious approach is imperative when dabbling in these companies as many will light cash on fire by opening new locations without the proper justifications. Taking that into account, here are three consumer stocks we’re passing on.

Designer Brands (DBI)

Market Cap: $160.5 million

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE:DBI) is an American discount retailer focused on footwear and accessories.

Why Should You Dump DBI?

Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations Below-average returns on capital indicate management struggled to find compelling investment opportunities High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $3.30 per share, Designer Brands trades at 6.5x forward P/E. Dive into our free research report to see why there are better opportunities than DBI.

CarMax (KMX)

Market Cap: $10.09 billion

Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE:KMX) is the largest automotive retailer in the United States.

Why Does KMX Worry Us?

Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience Widely-available products (and therefore stiff competition) result in an inferior gross margin of 10.6% that must be offset through higher volumes 17× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

CarMax’s stock price of $66.10 implies a valuation ratio of 16.3x forward P/E. To fully understand why you should be careful with KMX, check out our full research report (it’s free).

Sportsman's Warehouse (SPWH)

Market Cap: $68.53 million

A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.

Why Do We Avoid SPWH?

Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations Suboptimal cost structure is highlighted by its history of operating losses High net-debt-to-EBITDA ratio of 15× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Story Continues

Sportsman's Warehouse is trading at $1.73 per share, or 1.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SPWH in your portfolio, it’s free.

Stocks We Like More

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.

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