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Why Brick-and-Mortar Retail Stocks Are Falling Today

By John Rosevear - Apr 22, 2020 at 3:55PM

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More signs are suggesting that consumers haven't been spending.

What happened

Shares of brick-and-mortar retail companies were moving lower on Wednesday, after a leading provider of store-credit cards said that charges fell sharply after mid-March, when stores closed in response to the outbreak of the COVID-19 virus.

Here's where things stood for these three companies' stocks as of 3:00 p.m. EDT on Thursday, relative to their closing prices on Tuesday:

  • Gap (GPS 5.49%) was down about 5.8%.
  • Kohl's (KSS 4.12%) was down about 6.4%.
  • Urban Outfitters (URBN 4.67%) was down about 6.6%.

So what

As if retail-stock investors didn't have enough to worry about, with most brick-and-mortar apparel and department stores closed since mid-March, there's now a bit more evidence to suggest that sales -- in stores, online, wherever -- have fallen sharply since the onset of the coronavirus pandemic.

Synchrony Financial (SYF 1.26%), the largest U.S. provider of store-brand credit cards, said during its earnings report on Tuesday that it has seen a sharp decline in spending since stores closed last month. Purchases on its cards rose 10% from the year prior in January, 13% in February, and 14% in the beginning of March. But between March 18 and the end of the quarter on March 31, spending fell 26%.

A Gap sign outside of a store.

Image source: Gap.

Gap is one of Synchrony's five largest partners -- but it's not unreasonable to extrapolate the trend across retail. (Or put another way, the safe bet is that Kohl's and Urban Outfitters were hit hard, as well.) 

That's probably the story that's driving retail stocks lower on Wednesday, but here are the most recent developments on each of these three companies:

  • Bloomberg reported on Monday that Gap is working with banks and investors on a deal to issue new secured bonds, backed by Gap's inventory and some of its real estate, including distribution centers. 
  • Kohl's secured a new $1.5 billion credit line last week. It immediately drew down the full sum and said that it will use about $1 billion of that cash to refinance its existing debt. 
  • Loop Capital analyst Laura Champine cut her price target on Urban Outfitters on Monday to $18 from $23, while maintaining a hold rating on the stock. She thinks that consensus estimates for Urban Outfitters' first-quarter profit are "stale," given that the company's stores were closed for the most important part of the quarter. 

Now what

Investors will have to wait a little while longer for updates from these three companies' management teams. All three typically report quarterly earnings in the second half of May.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
$32.62 (4.12%) $1.29
The Gap, Inc. Stock Quote
The Gap, Inc.
$10.38 (5.49%) $0.54
Urban Outfitters, Inc. Stock Quote
Urban Outfitters, Inc.
$21.95 (4.67%) $0.98
Synchrony Financial Stock Quote
Synchrony Financial
$36.11 (1.26%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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