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Why Shares of These Retail Companies Are Surging Today

By John Rosevear - Mar 24, 2020 at 3:13PM

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A economic stimulus deal would be good news for all four.

What happened

Shares of several brick-and-mortar retail companies surged on Tuesday, as news reports suggest that Congress is close to agreement on a massive economic stimulus deal.

Here's where things stood for these stocks as of 2 p.m EDT:

  • Designer Brands (DBI 8.77%), owner of DSW Discount Shoe Warehouse and other shoe stores, was up 20.8%.
  • lululemon athletica (LULU -0.71%), the yogawear retailer, was up 8.8%.
  • RH (RH 1.41%), the parent company of Restoration Hardware, was up 20.9%.
  • Williams-Sonoma (WSM 0.80%), parent company of several home-goods chains, was up 13.2%.

So what

All four of these stocks have had bumpy rides over the last few weeks as retail-stock investors grappled with the likely effects of an extended retail shutdown amid the novel coronavirus pandemic. Here's the most recent news on each:

  • Designer Brands closed all of its stores in North America and cut its quarterly dividend by 60% on March 17. It had $115 million in cash as of that date. The company will pay its retail employees through the end of March. 
  • Lululemon has closed all of its stores in North America and Europe through at least March 27, and said that it will continue to pay employees while the stores are closed. The company will report earnings after the market closes on Thursday, March 26; I expect we'll hear more about its plans to conserve cash at that time.
  • RH said on March 17 that it is closing all of its stores until at least March 27, and that it will continue to pay employees while its stores are closed, but it hasn't provided any further updates on its balance sheet. The company has yet to announce a date for its next earnings release, but it typically reports in late March. 
  • Williams-Sonoma said on March 18 that it had over $430 million in cash as of the end of 2019, and another $500 million available via an untapped line of credit. The company closed all of its stores in the U.S. and Canada through at least April 2, and pledged to pay its retail employees through that date. 
A yogawear display inside a Lululemon store.

Image source: Lululemon Athletica.

Now what

For all of these companies -- and really, all companies -- the question now is not whether they have the cash to hold on through the pandemic; all are in at least fair shape right now. The question is what happens after the viral outbreak fades: Will there be a quick recovery -- or a protracted, deep recession? Moves by the U.S. government to show that it is determined to avoid the latter outcome would be strongly bullish for all four companies, but will they happen? 

I suspect that management teams at all four of these companies -- and many more -- are debating that question right now. Investors in Lululemon and RH can look forward to updates from those companies' management when they report earnings soon.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool recommends Designer Brands Inc., RH, and Williams-Sonoma. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$316.98 (-0.71%) $-2.28
RH Stock Quote
RH
RH
$303.50 (1.41%) $4.21
Designer Brands Inc. Stock Quote
Designer Brands Inc.
DBI
$18.49 (8.77%) $1.49
Williams-Sonoma, Inc. Stock Quote
Williams-Sonoma, Inc.
WSM
$155.74 (0.80%) $1.24

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

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