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A Silver Lining Despite Kohl's, Gap, and Bed Bath & Beyond Stock Dropping 10% Friday

By Daniel Miller - Mar 20, 2020 at 5:58PM

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It's been a rough year for many retailers, but Kohl's noticed something positive recently.

What happened

Shares of Kohl's (KSS -4.00%), Gap (GPS -1.90%), and Bed Bath & Beyond (BBBY -3.57%), all dropped over 10% at some point during Friday trading as retailers are shutting doors and investors remain concerned about the economic impact from the COVID-19 coronavirus.

So what

Broader markets erased early gains Friday and dropped throughout the afternoon even after Treasury Secretary Steven Mnuchin announced the U.S. tax deadline will now be July 15, giving the nation an extra three months. As people continue to avoid gatherings and focus on purchasing necessities, it's spreading more pain to many retailers already struggling with slowing foot traffic.

KSS Chart

KSS data by YCharts.

Gap's stock had been spiraling lower long before consumers became aware of COVID-19, and the outbreak merely adds more uncertainty to a company that had a surprise delay in its fourth-quarter earnings release and changed its mind about spinning off the Old Navy brand. This week Gap made the decision to temporarily close all U.S. stores starting March 19 for at least 14 days in the hope that it can help slow the spread of the coronavirus.

Bed Bath & Beyond investors can't seem to catch a break. The home goods retailer was already sputtering over the past few years, and recently appointed CEO Mark Tritton was brought on to help spark a turnaround. Roughly two months after Tritton took the helm, six key executives were no longer with the company, and it was clear things would be different. But at a time when the company is dealing with layoffs, store closures, and attempting to reignite top-line growth, the coronavirus is the last development investors wanted as consumers will likely avoid nonessential retailers.

Man and woman shopping at an apparel retailer

Image source: Getty Images.

Kohl's, in a move similar to Gap and other peers, announced Thursday it would close all stores nationwide for at least 14 days. But last week Kohl's also gave investors a silver lining: It noted in a filing with the Securities and Exchange Commission that it had witnessed weaker sales in some key markets but that it didn't see any impact on its e-commerce channel. That gives hope to investors in battered retailers that if the company has a strong e-commerce presence, it could help offset brick-and-mortar sales woes from the coronavirus outbreak.

Now what

There's little doubt that the novel coronavirus outbreak is going to hurt businesses across the globe, in just about any industry. Retailers that are slow to react and bolster their cash positions, and retailers that are lagging behind peers in e-commerce, will likely be hit the hardest. The good news is that while U.S. retail stocks are largely in decline right now, there are reports of improving consumer activity in China, which suggests things will eventually get back on track.

Furthermore, history has shown us many times that markets will rebound over the long term, and this is merely an opportunity to add businesses with strong balance sheets and competitive advantages to your portfolio.

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Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
KSS
$37.68 (-4.00%) $-1.57
The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$9.28 (-1.90%) $0.18
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$6.75 (-3.57%) $0.25

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

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