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Why Shares of Walmart, Target, CVS Health, and Rite Aid Jumped Today

By Brian Feroldi - Mar 2, 2020 at 6:07PM

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These retail stocks popped following reports that foot traffic was strong this weekend in response to the COVID-19 outbreak.

What happened

Investors in Walmart (WMT 2.85%), Target (TGT -0.94%), CVS Health (CVS 0.67%), and Rite Aid (RAD 0.71%) are having a pleasant start to the trading week. Shares of Walmart, Target, and CVS Health closed Monday's trading session up 8%, 6%, and 8%, respectively, following reports that their parking lots were full over the weekend as consumers looked to stock up in response to the COVID-19 coronavirus outbreak. 

Shares of Rite Aid did even better. The small-cap pharmacy chain ended the day up 13%.  

So what

We don't know exactly how much of a traffic boost that these retailers received over the weekend, but there were several news reports that many mass retailers had witnessed a surge in traffic. Demand for masks, hand sanitizer, water, and toilet paper have all spiked, and shortages have already been reported in a number of retail chains throughout the U.S. 

Busy retial store with hundreds of shoppers in checkout line

Image source: Getty Images.

It makes sense that traders are bidding up shares of these retailers in response to this news. It's likely that this frenzy will cause many of the chains to report a short-term bump in an important metric for retailers called same-store sales

But it's hard to imagine that this frenzied consumer buying activity will be sustainable over the long term. It's also likely that this short-term burst in demand will simply pull forward sales from future periods. If that's the case, then sales at each of these retailers could be hurt once the crisis is over.

The good news is that many of these stocks have recently reported good results even without this bump.

Walmart recently posted U.S. same-store sales growth of 1.9% and 35% growth in e-commerce sales. Management also guided for 2.5% U.S. comps growth in fiscal 2021, and that was before the recent sales spike from COVID-19. 

The story wasn't quite as pretty at Target. Investors were already warned that its holiday season was weaker than the company was expecting. Target is set to report its fourth-quarter results on Tuesday morning, so management might be happy to turn its attention to the recent boost in traffic over the weekend. 

CVS Health recently reported sales growth of 23%, but most of that huge jump is due to its buyout of Aetna last year. Retail sales did grow 2.5% thanks to an increase in prescription volume and beauty sales, but that strength was offset by reimbursement pricing pressure.

Rite Aid, on the other hand, continues to struggle. Retail pharmacy same-store sales fell 0.1%, and overall retail sales slumped 1.7% due to a reduction in store count. Management will probably be thrilled to talk up the weekend sales boost on its next earnings call if it proves to be needle-moving.

Now what

Walmart, Target, CVS Health, and Rite Aid were all walloped in last week's market drubbing, so today's jump will go a long way toward making investors whole. But the markets remain very volatile, so there's no telling where these stocks might head next.

More important, these short-term sales boosts won't have much effect on any of these companies' performance in the long term.  Investors should do their best to ignore all of the noise and focus on buying high-quality businesses that are positioned to thrive over time.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$122.60 (2.85%) $3.40
Rite Aid Corporation Stock Quote
Rite Aid Corporation
RAD
$5.66 (0.71%) $0.04
CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$95.57 (0.67%) $0.64
Target Corporation Stock Quote
Target Corporation
TGT
$153.90 (-0.94%) $-1.46

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

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