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Why Retailers' Shares Got Clobbered Today

By John Rosevear – Apr 1, 2020 at 5:01PM

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If you think March was bad, wait till you see April.

What happened

Shares of apparel-focused retailers were hit hard on Wednesday, as early sales numbers for March reinforced what many investors already knew: With most stores closed, April will be an exceptionally difficult month for brick-and-mortar retailers. 

Here's how things ended up for these three stocks on Wednesday:

  • American Eagle Outfitters (AEO -3.09%) closed down 11.8%.
  • TJX Companies (TJX 1.27%) closed down 6.6%.
  • Urban Outfitters (URBN -0.66%) closed down 7.5%.

So what

Broadly speaking, all three of these companies are dealing with the same issue: With brick-and-mortar stores closed for the foreseeable future, their revenue has dropped sharply. The challenge for all three: Stay afloat until stores reopen.

Exterior of an Urban Outfitters store.

Urban Outfitters' stores are closed indefinitely, the company said Tuesday. Image source: Urban Outfitters.



Here are the latest developments for each: 

  • Coverage of American Eagle Outfitters was initiated with a market perform rating, equivalent to hold, by Raymond James analyst Matthew McClintock. In a note on Wednesday morning, McClintock said that while American Eagle will face near-term challenges as it deals with the COVID-19 pandemic and the likely economic aftermath, the company has strong brands with "upstart potential" once the country and the economy recover. American Eagle closed all of its stores in the U.S. and Canada on March 17.
  • TJX CEO Ernie Herrman said in a statement that the company will continue to pay its store employees through the week ending April 11. On March 19, the company closed all of its brick-and-mortar stores, fulfillment centers, and its online businesses, and announced a series of cost cuts and the drawdown of its $1 billion credit line. At the time, it had said that it would pay store employees for two weeks. 
  • Urban Outfitters said on Tuesday that all of its stores, all around the world, will remain closed until further notice, and that it will furlough "a substantial number" of its store, wholesale, and home-office employees for 60 days. The company also said that it has borrowed $220 million to bolster its cash reserves, and that it is making a series of cost cuts to help stretch its cash as long as possible -- including a decision not to pay rent to its brick-and-mortar landlords for the time being. Urban Outfitters first closed its stores on March 14; it paid store employees through the end of the month. Furloughed employees will continue to receive benefits. 

Now what

The good news for retail-minded investors is that all three companies are in decent shape, have reasonable liquidity, and should be able to survive the pandemic and its economic aftermath. But they'll all emerge from this crisis with considerably less cash and flexibility, and they may face a challenging period after the COVID-19 outbreak has faded, if nervous consumers decide to stay home for a while longer. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Urban Outfitters, Inc. Stock Quote
Urban Outfitters, Inc.
URBN
$19.65 (-0.66%) $0.13
American Eagle Outfitters, Inc. Stock Quote
American Eagle Outfitters, Inc.
AEO
$9.73 (-3.09%) $0.31
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
TJX
$62.12 (1.27%) $0.78

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

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