Shares of several brick-and-mortar retail chains surged on Wednesday, despite some analyst downgrades, on growing investor optimism about the potential path of the post-coronavirus economic recovery.
Here's where things stood for these three companies as of 3 p.m. EDT, relative to their closing prices on Tuesday:
- Bed Bath & Beyond (BBBY) was up 21%.
- Designer Brands (DBI 4.90%) was up 19%.
- Gap (GPS 1.91%) was up 12.9%.
All three of these companies are in much the same place: All have closed their brick-and-mortar stores in the U.S. and Canada, all are making the most of their online storefronts to the extent they're able, and all have made moves to conserve cash and bolster their balance sheets.
That's the backdrop. Here are the latest developments with each company that might be moving their stocks on Wednesday.
Bed Bath & Beyond
In a note on Wednesday morning, Loop Capital analyst Anthony Chukumba cut his price target for Bed Bath & Beyond to $5, from $12, while maintaining a hold rating on the stock. His concerns center on the immediate financial impact of the COVID-19 outbreak, and what he sees as a likely recession in the U.S. later this year as the pandemic recedes.
Chukumba did see one bright spot for investors: His latest pricing study suggests that Bed Bath & Beyond has largely closed the price gap relative to Amazon (AMZN 0.20%), suggesting that the company is "cleaning up" its pricing strategy in a bid to improve its ability to compete with the online giant.
Bed Bath & Beyond closed nearly all of its stores in the U.S. and Canada on March 23, and said last week that those stores would remain closed until at least May 2.
In another note on Wednesday morning, Susquehanna analyst Sam Poser downgraded Designer Brands to the equivalent of hold, from the equivalent of buy, and cut his price target to $4 from $9. He noted that the parent company of DSW Designer Shoe Warehouse and other shoe-store chains has laid off or furloughed a large percentage of its workers, while continuing to pay for their healthcare benefits. a potential cash drain if stores remain closed for an extended period.
He is also concerned about the company's post-pandemic recovery, saying that it may struggle to ramp up to its prior level of sales, as it may have to hire and train a lot of new employees. Designer Brands' stores have been closed since March 17.
Investors are still digesting a Monday article by industry-news site The Business of Fashion, in which it reported that Gap has paused all production of merchandise for the fall season and has asked suppliers not to ship products intended for its brick-and-mortar stores. Gap is only accepting shipments for its online platforms, per the report. The company made headlines last week after it furloughed most of its store teams in the U.S. and Canada, about 80,000 workers in total.
Gap closed all of its retail stores in North America as of March 19.
For retail-minded investors, upcoming earnings calls will be of great interest. That's when we'll learn how the companies are managing their cash and inventories, and how they're planning for the second half of 2020. Here's when those calls will happen:
- Bed Bath & Beyond will report its fiscal fourth-quarter and full-year earnings next week, on April 15.
- Designer Brands will report its fiscal first-quarter earnings in late May.
- Gap will likely report its fiscal first-quarter results in mid-June.
Until then, investors will have to watch and wait.