Please ensure Javascript is enabled for purposes of website accessibility

Why These Retail Stocks Were Rising Sharply on Monday

By John Rosevear - Apr 6, 2020 at 2:13PM

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

Consumers are still buying, and that's good news for now and later.

What happened

Shares of many retailers were surging on Monday afternoon, amid a broad-based market rally on signs that the economic impact of the coronavirus pandemic might not be quite as bad as previously feared.

Here's where things stood for these companies' stocks as of 2:45 p.m. EDT, relative to their closing prices on Friday:

  • American Eagle Outfitters (AEO 3.12%) was up 19%.
  • Bed Bath & Beyond (BBBY -19.63%) was up 15.2%.
  • Designer Brands (DBI 0.00%) was up 16.8%.
  • Ulta Beauty (ULTA 1.21%) was up 19.5%.

So what

With the total number of COVID-19 cases still rising rapidly, "optimism" is a relative concept right now. But that said, there are reasons to be cautiously optimistic about the U.S. economy -- or at least, somewhat less pessimistic than we might have been recently. 

Here's one that's relevant to the retail stocks we're looking at here: Wayfair (W 2.68%), the online furniture and home-goods retailer, said this morning that its sales (online, remember) boomed in mid-March and have stayed very strong since. Translation: Plenty of consumers stuck at home still have money to spend, and they're spending it online.

For companies that have online storefronts to complement their brick-and-mortar locations, that's good news for a couple of reasons. First, if they can fulfill online orders right now, they can probably generate at least some revenue while stores are closed.

Second, it bodes well for what might happen when stores reopen. If consumers are still spending, then the post-coronavirus economic recovery might happen sooner than feared.

A woman in a shoe store, examining a sneaker.

Image source: Getty Images.

Here are the latest developments for each of these four companies:

  • American Eagle Outfitters said last week that it is deferring (but not skipping) its dividend payments until April 2021, furloughing some employees without pay (but with health insurance, for those who have it) while stores are closed; and has suspended its stock-buyback program.
  • Bed Bath & Beyond said last week that it has extended its store closures until at least May 2, furloughing most of its store employees and some corporate employees through that period (again, without pay but with health benefits); and has drawn down $236 million from its credit lines and cut spending. The company has also sued 1-800-Flowers.com (FLWS -1.22%), alleging that the flower company is trying to back out of a deal to purchase personalization brand Pmall.com from Bed Bath & Beyond. 
  • Designer Brands put most of its employees (outside of its online businesses) on unpaid leave as of March 29; those employees will retain their benefits while on leave. Remaining employees will take salary reductions, the company said. Designer Brands closed its brick-and-mortar stores on March 17, but it has kept the fulfillment centers for its (substantial) online businesses open for the duration.
  • Ulta Beauty said last week that it has cut back its capital expenditure plans, including its plans to open 75 new stores this year, and suspended its stock-repurchase program. Those steps followed earlier moves to close its brick-and-mortar stores (but not its fulfillment centers) indefinitely, to pay workers supporting its online business an extra $2 per hour, and to promise to pay all store workers through mid-April (and to maintain their health benefits indefinitely beyond that date, for those workers who have them). 

Now what

The big question in the near term for all four of these companies is this: How are their online sales going? If housebound consumers are still spending, that's good news for all retailers with online presences. But it will be better news for some than for others. 

There's a lot of optimism in the market today. But as retail-focused investors have learned (the hard way) over the last few weeks, things can change very quickly right now: Stay tuned. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ulta Beauty and Wayfair. The Motley Fool recommends Designer Brands Inc. 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

American Eagle Outfitters, Inc. Stock Quote
American Eagle Outfitters, Inc.
AEO
$13.56 (3.12%) $0.41
Ulta Beauty, Inc. Stock Quote
Ulta Beauty, Inc.
ULTA
$409.25 (1.21%) $4.90
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$18.55 (-19.63%) $-4.53
Designer Brands Inc. Stock Quote
Designer Brands Inc.
DBI
$18.53 (0.00%) $0.00
1-800-FLOWERS.COM, Inc. Stock Quote
1-800-FLOWERS.COM, Inc.
FLWS
$9.74 (-1.22%) $0.12
Wayfair Inc. Stock Quote
Wayfair Inc.
W
$71.34 (2.68%) $1.86

*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
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

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.