Please ensure Javascript is enabled for purposes of website accessibility

Why The Michaels Companies Stock Plunged 62% In March

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

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

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.

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 Michaels Companies Stock Quote
The Michaels Companies
MIK

*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
379%
 
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 08/10/2022.

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.