CERTAIN INDUSTRIES HAVE been financially marred by the health crisis.
Despite recent vaccine news, which would have markets optimistic about reverting closer to normal, the travel, leisure, restaurant, entertainment and retail sectors cannot catch a break.
These industries face adversity as they are compelled to strengthen their balance sheets, preserve liquidity and reduce expenses. As investors keep monitoring their investment portfolios into the last month of the year, here are five stocks to sell or stay away from in December:
— BJ’s Restaurants (ticker: BJRI)
— Francesca’s Holdings Corp. (FRAN)
— MSG Networks (MSGN)
— Carnival Corp. (CCL)
— DiamondRock Hospitality Co. (DRH)
BJ’s Restaurants (BJRI)
Market capitalization: $761 million Year-to-date performance: -10%
The Huntington Beach, California-based restaurant dining chain operates more than 200 restaurants in 28 states offering dine-in, takeout and delivery services. The company’s revenues come from food and beverage sales at its restaurants that have been withering down due to pandemic interruptions.
First-quarter revenues decreased 12.4% to $254.6 million. In the second quarter, revenues decreased 57.5% to $128 million. The restaurant chain reported a decrease in revenues for the third quarter of 28.6% to around $199 million. The heavy losses resulting from the pandemic compelled BJ’s to take active measures to remain financially nimble. According to a filing with the U.S. Securities and Exchange Commission, BJ’s has suspended its quarterly cash dividend and share repurchase activity, restructured lease payments, and temporarily laid off 16,000 employees, of which 10,000 have returned.
The company has focused its efforts on increasing orders through its digital offerings, which could prove helpful in increasing sales, but the costs of operations could bog down revenues. Management decided to either “delay or cancel” the openings of most new restaurants scheduled for this year. The brand known for its craft beer and deep dish, Chicago-style pizza will expand its restaurant openings next year. BJ’s opened a paltry two new restaurants in this year.
BJRI’s current stock value is hovering around $34.
Francesca’s Holdings Corp. (FRAN)
Market cap: $8.5 million YTD performance: -73%
Francesca’s, a Houston-based boutique chain in the clothing retail industry, operates about 700 locations nationwide, mostly in malls.
The pandemic has put a massive strain on the retailer’s business. Francesca’s reported a decline in first-quarter sales of 50% to $43.8 million and an additional fall in second-quarter sales of 29% to $75.7 million. Francesca’s says the health crisis has precluded its staff, vendors and other partners to conduct business as usual, impacting in-store sales along with its e-commerce business. This may be a sign of concern because while other retailers have been suffering from reduced sales due to temporary store shutdowns, some of FRAN’s competitors have been able to make up part of their losses through digital sales.
It has been challenging for Francesca’s to increase revenues, impacting the future well-being of the company. FRAN is aggressively attempting to preserve its cash and build up its liquidity.
FRAN closed eight boutiques in the first quarter, and by the end of the second quarter, it closed an additional four. Reports indicate the national chain may close 140 stores by January 2021.
MSG Networks Inc. (MSGN)
Market cap: $729 million YTD performance: -27%
Madison Square Garden, a famous staple of entertainment in Manhattan, recognized for its sporting and entertainment events, has been impacted with the NBA and NHL temporarily suspended due to the pandemic.
Second-quarter revenues saw a 3% decrease to $187.7 million. MSGN reported a 5% decrease in revenues to $185 million in the third quarter, and the fourth quarter saw a 10% decrease in revenues to $152 million. With “socially distanced” measures, live sporting events cannot have an audience, which has impacted advertising revenue. Throughout fiscal 2020, ad revenue decreased each quarter due to a pause in live professional sports, lower ratings and fewer or no sports telecasts. MSGN’s revenue decreases were slightly better with ad revenue up to $3.6 million as reported in its latest first-quarter fiscal 2021 report, but they still had a 2% decrease compared with the prior year.
MSG Networks has two sports and entertainment networks, MSG Network and MSG+ and MSGNetworks.com and MGS GO. These affiliates saw a decrease in fee revenue due to a drop in the number of subscriber viewings.
With sporting and entertainment events on pause, the lifeblood of MSG, the company could be facing trouble if the current situation persists. This entertainment stock has a current market value of slightly more than $12.
Carnival Corp. (CCL)
Market cap: $21.2 billion YTD performance: -60%
Despite positive news surrounding multiple COVID-19 vaccines, the cruise line industry has been falling behind. The pandemic is likely to persist into the foreseeable future, and for that reason, CCL faces multiple risks.
The Centers for Disease Control and Prevention put together a conditional sailing order to protect crew members and passengers through a phased approach to help restart cruise operations effective Oct. 30. This requires social distancing, testing and isolation measures to prevent the spread of the virus. In a Nov. 23 release, the CDC reported: “The current scientific evidence suggests that cruise ships pose a greater risk of COVID-19 transmission than other settings because of high population density on board ships. which are typically more densely populated than cities or most other living situations.”
Passengers ages 50 to 69 account for the largest average passenger age group, according to the Cruise Lines International Association. These populations are at higher risk if exposed to the virus, and cruises may not appeal to them even with public safety measures. As a result, this could reduce their appetite for cruise vacations.
Despite having what seems to be a substantial $8 billion cash availability, CCL reported a $2.9 billion loss in the third quarter, a $4.4 billion loss in the second quarter and an average monthly cash burn rate of about $650 million in the second half of the year, according to its latest earnings release.
There is confidence among cruise line CEOs about the outlook of the industry, but the uncertainty around when cruises will resume and when social distancing measures will be eased dampen the short-term perspective.
DiamondRock Hospitality Company (DRH)
Market cap: $1.5 billion YTD performance: -29%
Headquartered in Bethesda, Maryland, DiamondRock Hospitality Company is a real estate investment trust, or REIT, with a portfolio of more than 30 top brand name hotels like JW Marriott ( MAR), Westin, Sheraton and Hilton ( HLT), as well as boutique hotels dispersed across the U.S.
Earlier in the year, during the peak of the pandemic, a majority of DRH’s hotels halted operations — an unprecedented but government-mandated action that set the stage for a tough financial year. Furthermore, with the effects of the pandemic being widespread, the demand for travel and leisure may continue to fall.
In the third quarter, the REIT experienced a net loss of about $79 million, a $73 million loss in the second quarter, and a $34.7 million loss in the first quarter. The company has been focusing on its balance sheet to preserve its liquidity by suspending its quarterly dividend, reducing business expenses and putting forward its equity offering to sell common stock shares.
DRH stock market value stands at less than $8.
More from U.S. News