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Why the RCG Corporation Ltd share price has plunged today

The RCG Corporation Ltd (ASX: RCG) share price has tumbled lower in early trade after the footwear retailer downgraded its full-year guidance for the second time in just over two months.

At the time of writing its shares are down 18% to 68 cents.

At the end of February the company blamed tough trading conditions since Boxing Day on a downgrade to its full-year underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) guidance.

Instead of $90 million, management revised its underlying EBITDA to be between $85 million and $88 million.

Unfortunately things appear to have got worse since then, with the performance of all its businesses falling short of management’s expectations in March and April.

This has resulted in the company revising its full-year underlying EBITDA guidance to a range of $74 million to $80 million.

Considering its shares fell 23% in April, today’s downgrade has no doubt raised a few eyebrows.

But management has been quick to give its opinion on the share price decline, stating its belief that its shares have been: “caught up in the widespread sell down of retail stocks over the last few months due to a number of factors.”

Should you buy the dip?

With its shares down 52% so far this year, RCG Corporation certainly does look attractive at a little under 10x trailing earnings and providing a trailing fully franked 8.5% dividend.

But I would suggest investors give the company a wide berth after today’s update and wait for a vast improvement in its performance. After all, things could still get a lot worse before they get better.

In the meantime, investors wanting exposure to the retail sector might want to consider Bapcor Ltd (ASX: BAP) and Premier Investments Limited (ASX: PMV). Both retailers are performing very strongly and have a long runway for growth in my opinion.

Whilst RCG Corporation's cheap price and dividend may make it a tempting investment, I would suggest investors look at this HUGE dividend yield instead.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Premier Investments Limited. Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bapcor. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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