Please ensure Javascript is enabled for purposes of website accessibility

Why The Michaels Companies, Chico's FAS, and J. Jill Crashed Today

By Anders Bylund – Aug 27, 2019 at 4:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These three retailers delivered good news or none at all, but investors were more focused on U.S.-China trade tensions -- arguably with good reason.

What happened

Shares of several American retailers fell hard on Tuesday. Apparel chains J. Jill (JILL 3.83%) and Chico's FAS (CHS -0.98%) dropped as much as 19.5% each, while arts-and-crafts specialist The Michaels Companies (MIK) moved as much as 10% lower.

A young woman leaning against the wall with an open wallet in her hand and an empty shopping cart by her side.

Image source: Getty Images.

So what

J. Jill posted its second-quarter earnings before the opening bell, but the other two companies shared no news at all. As for J. Jill's report, it was a beat-and-raise performance of the type that normally could have been expected to move share prices higher. Revenues rose 0.5% to $181 million, ahead of Wall Street analysts' $179 million consensus estimate. On the bottom line, a net loss of $0.05 per share was better than the loss of $0.09 per share that analysts had expected. The company also lifted its full-year earnings guidance by 15%.

Neither of the other two retailers can pin their steep share price drops Tuesday on J. Jill, the way one bad apple sometimes spoils an entire sector in the short term. Instead, all three of these stocks appear to have crashed due to the continued saber-rattling in the trade war between the U.S. and China.

On the heels of a turbulent G7 conference over the weekend, Chinese officials described the "extreme pressure" Trump is applying to China through trade tariffs as "not constructive at all." Both countries are planning to escalate their tariff schedules again, which will add further stress to retailers that source large fractions of their goods from China -- just ahead of the crucial holiday shopping season.

J. Jill, Michaels, and Chico's all fall in that category, which explains why their shares plunged Tuesday.

Now what

In a recent earnings call, Chico's CEO Bonnie Brooks said that Chinese tariffs hadn't hurt the company so far, but cautioned that the upcoming fourth round of 25% import taxes would make a real difference.

"We are working on mitigating strategies, including engaging with our vendors, on cost-sharing agreements and managing and adjusting our forward buys and product pricing," Brooks said. "Over the last year, we have reduced our product manufactured in China by approximately 20% as we continue to diversify our countries of origin, and continue to further reduce our penetration there."

Michaels CFO Denise Paulonis sang a similar tune in June.

"We are aggressively working on our tariff mitigation plan that includes sourcing actions, vendor negotiation, product reengineering, and selective price increases," Paulonis said. "Of note, we are pleased that we've been successful in shifting some of our purchases out of China. Clearly, the situation remains fluid and if List 4 China tariffs are implemented, we will continue to use all available resources to reduce the dollar impact."

And J. Jill is working to reduce its reliance on Chinese manufacturers to less than 20% of the total cost of goods sourced. A harsher list of tariffs could really hurt these companies, and market makers are taking that threat seriously.

MIK Chart

MIK data by YCharts

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Michaels Stores. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chicos FAS Stock Quote
Chicos FAS
CHS
$6.05 (-0.98%) $0.06
The Michaels Companies Stock Quote
The Michaels Companies
MIK
J.Jill, Inc. Stock Quote
J.Jill, Inc.
JILL
$26.03 (3.83%) $0.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.