Discretionary Businesses Struggle Amid Lagging Sales Growth

Three consumer discretionary businesses - Figs (FIGS), Nike (NKE), and News Corp (NWSA) - are struggling to keep up with market demands, according to a recent analysis. These companies have seen their stock prices lag behind the S&P 500 over the past six months, with FIGS down by 4.8 percentage points.

Figs, a healthcare apparel company founded in 2013, is facing sluggish trends in its active customers and weak free cash flow margin of 10.7% for the last two years. This restricts its ability to fund investments or reward shareholders with increased buybacks or dividends. Additionally, waning returns on capital from an already weak starting point display the inefficacy of management's past and current investment decisions.

Nike, a global athletic footwear and apparel giant, is also experiencing challenges in maintaining market share, with constant currency growth over the past two years indicating weak performance. Its poor free cash flow margin of 5.9% for the last two years limits its freedom to invest in growth initiatives or pay dividends.

News Corp, a multinational conglomerate established in 2013, has seen flat sales over the last five years and lacks free cash flow generation, making it difficult to reinvest for growth or distribute capital. Returns on capital haven't budged, indicating management's inability to drive additional value creation.