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Why The Michaels Companies Stock Plunged 62% In March

By Anders Bylund - Apr 3, 2020 at 1:58PM

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The arts and crafts retailer is fighting for survival on three fronts, each one potentially devastating in the long run. Management tried some dirty tricks to keep the train rolling in March.

What happened

Shares of The Michaels Companies (MIK) plummeted 62.2% in March, according to data from S&P Global Market Intelligence. The arts and crafts retailer was already struggling under Chinese tariffs and the rise of e-commerce before the novel coronavirus turned the retail market upside down.

So what

Please, have a seat. This tale gets a little ugly.

When Michaels reported fourth-quarter results on March 17, CEO Ashley Buchanan (who actually assumed the CEO title on April 1) laid out a detailed plan of operations for the upcoming fiscal year. He also made it clear that the coronavirus shouldn't cause much more than a hiccup in Michaels' supply chains and a modest drop in consumer demand for his company's products.

Of course, the company wasn't planning to close down its stores at the time. Just like sector rivals Joann Stores and Hobby Lobby, Michaels claimed to be "essential retail" that needs to be open even in times of crisis. A county judge forced Joann, Hobby Lobby, and Michaels to close their Dallas locations on Thursday. Under that court order, store owners who resist the shutdown may face both significant fines and a bit of jail time.

A businessman places a small sign on a table, reading Safety First.

This advice applies both to store workers and investors. Image source: Getty Images.

Now what

At the end of February, I thought that Michaels would spring back to life after the coronavirus crisis, rewarding investors who bought the stock at a massive discount. I'm not so sure these days. Keeping stores open in the face of a public health crisis is a pretty desperate move; Michaels is in deep trouble if that's what it would take to keep the lights on in 2021 and beyond. As it turns out, this stock is trading at rock-bottom valuation ratios for good reason. Please don't try to catch this falling knife.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends The Michaels Companies. The Motley Fool has a disclosure policy.

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