Please ensure Javascript is enabled for purposes of website accessibility

Why Some Brick-and-Mortar Retail Stocks Are Falling Today

By John Rosevear – Apr 15, 2020 at 10:46AM

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

Things are not looking good for many traditional retailers.

What happened

Shares of several brick-and-mortar retail chains opened lower on Wednesday, as investor concerns about the impact of extended store closings were magnified following a Reuters report that J.C. Penney (JCPN.Q) is considering bankruptcy.

Here's where things stood for these four stocks as of 10:30 a.m. EDT today, relative to their closing prices on Tuesday: 

  • Bed Bath & Beyond (BBBY -5.92%) was down 12.5%.
  • Gap (GPS -4.40%) was down 7.8%.
  • Kohl's (KSS -2.34%) was down 7.7%.
  • Macy's (M -0.44%) was down 8.6%.
A Kohl's sign on the outside of a store.

How long can Kohl's hold out with its physical stores closed? Investors aren't liking the answer. Image source: Kohl's.

So what

Several developments were driving investors' concerns about brick-and-mortar retailers on Wednesday morning. Among them:

  • As first reported by Reuters on Tuesday evening, troubled department store chain J.C. Penney is considering filing for bankruptcy protection. The company has enough cash to survive for several months with its 850 stores closed, but with large debt repayments looming and high interest expenses, a rework of its finances under bankruptcy protection may be the best path forward.
  • In a note on Tuesday, Cowen retail analysts led by Oliver Chen said that several big-name retail chains won't be able to survive extended shutdowns without additional cash. The analysts think that Macy's can withstand about four months with its stores closed, while Kohl's has about six months. They believe that upscale chain Nordstrom (JWN -2.23%) is the best positioned of the group, with the ability to hold out for a year with stores closed.
  • Investors may also still be digesting a report by Reuters on Sunday that Macy's has hired an investment bank to explore options to raise cash and restructure its finances. 

What all of these companies have in common is that they closed their retail stores in North America (and for some, elsewhere) in mid-March. With much of their revenue gone for the time being, all are now hunkered down hoping that their cash will last until the COVID-19 pandemic fades. 

Most brick-and-mortar retailers, including Bed Bath & Beyond, Gap, Kohl's, and Macy's, have one other thing in common: Their credit ratings have been cut since the outbreak of the pandemic in the U.S., making it more difficult (or at least more expensive) to raise additional cash. 

Now what

For investors looking for bargains among retail companies, one of the big questions right now has to be this: Can the company hold out long enough to recover without a trip through bankruptcy court? 

I think it's fair to say that these four stocks were falling on Wednesday morning because investors have been asking that question, and they aren't feeling good about the likely answers. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. 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

Kohl's Corporation Stock Quote
Kohl's Corporation
KSS
$26.30 (-2.34%) $0.63
The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$8.47 (-4.40%) $0.39
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$15.72 (-0.44%) $0.07
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$6.67 (-5.92%) $0.42
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q
Nordstrom, Inc. Stock Quote
Nordstrom, Inc.
JWN
$17.96 (-2.23%) $0.41

*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
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

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.