Shares of Foot Locker (FL -0.76%), Callaway Golf (ELY 1.48%), and Newell Brands (NWL 0.07%), the respective leading retailers of shoes and accessories, golfing products, and assorted consumer goods, all dropped by double digits during intraday trading Friday after a couple of developments hit retailers hard.
The broader markets declined today, pulling down many retailers. This was partly due to gloomy reports from Amazon. The company posted a strong 26% first-quarter sales growth but also warned of a possible $4 billion in COVID-19 related costs that could drag down its operating income. Apple also reported that its growth slowed drastically compared to the prior year, and for the first time in years, it opted not to provide investors an outlook for the full year.
Arguably the largest factor weighing on retailers Friday was President Donald Trump's criticism of China over the handling of the COVID-19 coronavirus outbreak. He even insinuated there could be some sort of trade tariff retaliation over the pandemic. After months and months of trade war rhetoric in 2019, this is not what global retailers wanted to hear, especially amid such a drastic economic pullback due to social distancing to prevent the spread of COVID-19.
Newell Brands, a producer of appliances, cookware, food and commercial, home and outdoor products, also had selling pressure after its disappointing first-quarter results. The company's core sales declined 5.1%, which was worse than its guidance of a 3% to 5% decline, and its total net sales dropped 7.6% compared to the prior year. Worse yet, management pulled full-year guidance and warned that the second quarter will be "very challenging."
COVID-19 was a significant gut punch to Callaway Golf. The company was on pace to deliver record net sales for 2020 through early March, which would have added on another tally to its sales records set in each of the past three years. However, in mid-March, stay-at-home orders significantly dented the company's financial results.
Management is now forced to take actions to improve liquidity and reduce costs. Already the company reduced planned operating expenses by 20% and has over $250 million in cash and availability under its revolving credit facilities to continue weathering this COVID-19 slowdown.
Investors would be wise to take these stock pops and drops with a grain of salt. For instance, we're only a couple of days removed from Foot Locker jumping over 10% when Gilead Sciences said a trial of remdesivir was producing positive results, giving retailers hope that COVID-19 could be under control sooner rather than later.
Investors scouring the market for their favorite stocks trading on the cheap would be wise to do twice their due diligence in research during the COVID-19 pandemic. There are many examples of how one unexpected factor could actually cause serious damage to financials and stocks.
Further, while broader markets will almost certainly rebound from COVID-19 and its negative impacts, not all stocks have the balance sheet strength and liquidity to weather this storm. Invest wisely.