Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Macy's, Gap, and Under Armour Were Falling Today

By Jeremy Bowman - Updated Mar 27, 2020 at 2:02PM

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

Apparel retailers continued to get hammered by the COVID-19 pandemic.

What happened

Shares of retailers including Macy's (M 0.96%)Gap (GPS -0.10%), and Under Armour (UA 1.20%) (UAA 0.32%) were all heading lower today due to a mix of downgrades and negative reports as the broader market pulled back after three straight days of gains. 

As of 12:39 p.m. EDT on Friday, Macy's stock was down 7.8%, Gap shares were off 7.6%, and Under Armour stock had given up 3.9%. At the same time, the S&P 500 was down 2.8%.

Three shoppers holding bags in a mall

Image source: Getty Images.

So what

After a three-day gain on hopes that the rescue package coming out of Congress can keep the economy on its feet, stocks fell back again today. Last night, the U.S. topped Italy to become the country with the most COVID-19 cases in the world, and this morning, Boris Johnson, the U.K.'s prime minister, tested positive for the disease.

Retailers, especially discretionary ones like the trio above, have been particularly vulnerable to the crisis. They have had to close down stores, and they don't know when they'll reopen. Therefore, the negative sentiment in the market today helped push those stocks lower.

Macy's got hit by a downgrade from Cleveland Research from neutral to underperform. Analyst Rusty Wilson said that comparable-store sales began to fall in the second week of March and have significantly deteriorated since then. Wilson also said that e-commerce sales had not added a significant benefit, and that the company was pausing or canceling most of its orders through May, showing it doesn't expect business to recover for at least a month.  

Macy's had said on March 17 that it would close all of its stores through the end of the month, and then said a few days later that it was suspending its quarterly dividend, accessing a $1.5 billion credit facility. It also said that CEO Jeff Gennette wouldn't receive any compensation during the crisis.  

Like Macy's, Gap said on March 17 that it would close its stores, and followed that up with a business update last night. It will draw down the $500 million in its credit facility, suspend dividend payments, reduce capital expenditures by $300 million, review all operating expenses, and realign its inventory according to expected sales trends. The company also pulled its guidance, but noted that it remains open for business online and that it generated $4 billion in online sales last year. By sales and store count, Gap is one of the biggest apparel retailers in the country, and its update, along with Macy's, shows how challenging the current crisis is for apparel retailers.

Finally, Under Armour also got tripped up by an analyst downgrade as Stifel lowered its rating from buy to hold and dropped its price target from $16 to $11. Analyst Jim Duffy said the pandemic would hamper the company's turnaround efforts and weigh on its performance in North America, its most important region but one where sales growth was already expected to be negative this year. 

Now what

The longer the pandemic lasts in the U.S., the worse it's going to be for these companies, and there are currently no signs of the outbreak letting up. Though a number of states have implemented "shelter in place" orders and told nonessential businesses to close, the number of active cases in the U.S. is growing rapidly, and the situation is getting more dire.

In other words, these stores will remain closed for at least the next few weeks. All of these stocks are now trading for just single-digit prices. In normal times, they would be bargains, but until there are signs that the disease is being contained, the stocks are likely to continue flailing.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). 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

The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$9.74 (-0.10%) $0.01
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$17.84 (0.96%) $0.17
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UAA
$9.33 (0.32%) $0.03
Under Armour, Inc. Stock Quote
Under Armour, Inc.
UA
$8.45 (1.20%) $0.10

*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
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

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.