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Why Designer Brands, Gap, and Kohl's Stocks Are Rising Today

By John Rosevear – Updated Apr 27, 2020 at 1:00PM

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Is that a little light at the end of the retail tunnel?

What happened

On Monday, shares of several retail-chain operators were rising in a broad-based rally amid growing evidence that online sales have remained strong during the coronavirus outbreak.

Here's where things stood for these three companies' stocks as of 12:45 p.m. EDT relative to their closing prices on Friday.

  • Designer Brands (DBI -1.28%) shares were up 15.1%.
  • Gap (GPS -4.40%) shares were up 8.5%.
  • Kohl's (KSS -2.34%) shares were up 12.5%.
A Gap sign outside of a store.

Gap's shares were among those rising on Monday. Image source: Gap.

So what

While the coronavirus pandemic is far from over, and there's no clear date set for the reopening of shuttered retail stores in the U.S. and Canada, there are growing signs that online sales may be helping some retailers weather an extended period of store closures.

Home-goods retailer Bed Bath & Beyond (BBBY -5.92%) said on Friday that its online sales have jumped so much since mid-March -- 85% -- that it has converted some of its closed stores to distribution centers, bringing hundreds of furloughed employees back to work earlier than expected.

Earlier this month, online furniture retailer Wayfair (W -3.67%) said that its business jumped after brick-and-mortar rivals shut down their stores in mid-March. That increase continued into April, it said. 

There's no news driving individual gains for Designer Brands, Gap, and Kohl's -- it appears they're moving with the larger group. But there were new analyst notes on Gap and Kohl's on Monday that are worth noting here:

  • Barclays analyst Adrienne Yih cut her price target for Gap to $5 from $10 while maintaining the equivalent of a sell rating on the shares. She said that she reduced her full-year earnings estimates for the company to reflect the ongoing impact of the COVID-19 outbreak, Gap's recent $2.25 billion debt offering, and the suspension of its dividend. For now, Yih is assuming that Gap's stores will remain closed through the end of May.
  • Guggenheim analyst Robert Drbul cut his price target for Kohl's to $25 from $50 while keeping a buy rating on the shares. He thinks that Kohl's near- to medium-term results will be hit hard by the spread of COVID-19 in the U.S., but feels that Kohl's has the balance sheet to survive the outbreak and sufficient financial strength to gain market share at the expense of weaker rivals during the post-outbreak recovery. 

Now what

It's not clear how much of these three companies' lost revenue will be offset by their online businesses, though it certainly won't be close to 100%. But signs that consumers are still spending discretionary income are -- at least to some extent -- bullish for all three. 

Investors will have to wait a little longer for updates from management teams, however. All three are expected to deliver their next quarterly earnings reports in the second half of May. 

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

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Stocks Mentioned

Kohl's Corporation Stock Quote
Kohl's Corporation
$26.30 (-2.34%) $0.63
The Gap, Inc. Stock Quote
The Gap, Inc.
$8.47 (-4.40%) $0.39
Designer Brands Inc. Stock Quote
Designer Brands Inc.
$15.39 (-1.28%) $0.20
Barclays PLC Stock Quote
Barclays PLC
$7.08 (-5.98%) $0.45
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
$6.67 (-5.92%) $0.42
Wayfair Inc. Stock Quote
Wayfair Inc.
$37.76 (-3.67%) $-1.44

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

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