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Here's Why Best Buy, Office Depot, and Michaels Crashed Today

By Anders Bylund - May 1, 2020 at 3:22PM

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The COVID-19 pandemic strikes again. Retailers may need to stay closed far longer than previously expected.

What happened

Shares of many household-name retailers plunged on Friday as the COVID-19 pandemic reared its ugly head again. Researchers from the Center for Infectious Disease Research and Policy at the University of Minnesota now say that the disease may continue to spread for nearly two years, potentially delaying the return to normal retail operations by as much as 18 months.

Responding to this grim report, shares of electronics and home appliances vendor Best Buy (BBY 2.42%) fell as much as 6% on Friday while arts and crafts supplies retailer Michaels (MIK) dipped as far as 16.1% lower. Office supplies seller Office Depot (ODP 0.36%) took an even deeper dive, falling as much as 16.7% lower.

So what

All of these stocks saw strong price gains in April as the coronavirus started to look like a winnable battle. Today, the University of Minnesota's analysis of the underlying SARS-CoV-2 virus showed that governments around the world must be prepared to tackle another 18 to 24 months of mitigation efforts.

"Because of a longer incubation period, more asymptomatic spread, and a higher [average number of new infections spreading from a single infected individual], COVID-19 appears to spread more easily than flu," the report said. "The length of the pandemic will likely be 18 to 24 months, as herd immunity gradually develops in the human population."

An effective vaccine would help, as would a reliable treatment for severe cases. Research efforts are under way for both of these healthcare approaches but we're a long way away from mass production of an approved solution. Premature attempts to reopen closed businesses and canceling the social distancing policies that are in place now will probably lead to additional waves of new infections and COVID-19 deaths.

A man sprays disinfectant on his hands, standing behind a blue van with lots of cardboard boxes loaded into the open backdoor.

Image source: Getty Images.

Now what

Each one of these retail chains has managed the novel coronavirus crisis in different ways.

Best Buy furloughed 51,000 of its 125,000 workers in mid-April, as part of a broad cash-conservation program. Curbside pick-up sales currently account for roughly 70% of the full retail experience's weekly sales, while online sales more than tripled in comparison to pre-COVID levels.

Office Depot decided to reorganize itself under a new holding company while drawing down extra cash from its credit facilities. The company has neither furloughed any workers nor reduced executive paychecks, and management hasn't provided any updates on Office Depot's financial performance under these unusual circumstances.

Michaels installed a new CEO with corner-office experience from retail giant Walmart (WMT 0.86%) on April 1, and new leader Ashley Buchanan is facing massive challenges right now. Michaels was in dire financial straits before the coronavirus outbreak and the company tried some shady tactics such as declaring itself an essential retailer in a bid to stay open while other store chains closed their physical doors. Like Office Depot, Michaels hasn't announced any serious cost-cutting moves apart from the usual fare of curbside-pickup operations.

In light of these varied situations, Michaels could be in serious trouble if the coronavirus pandemic sticks around for much longer while Best Buy should be able to survive even a long period of nothing but online orders and curbside pickups. For Office Depot, I guess we won't really know until the company reports earnings near the end of May. The corporate silence itself may be a bad sign -- if the company had any good news to share, I'm sure management would have told us by now.

Best Buy's shares have now fallen 13% in 2020 and Office Depot is nursing a 19% cut. Michaels investors have suffered a 62% plunge and the stock currently trades at just 1.7 times trailing earnings and 0.1 times sales. All of these stocks could still fall much further if the market-moving virus report is right.

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Stocks Mentioned

Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$66.77 (2.42%) $1.58
The ODP Corporation Stock Quote
The ODP Corporation
ODP
$30.35 (0.36%) $0.11
The Michaels Companies Stock Quote
The Michaels Companies
MIK
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$122.63 (0.86%) $1.05

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

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