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Why Coty, Crocs, and Foot Locker Jumped 10% Tuesday

By Daniel Miller – May 26, 2020 at 3:42PM

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What investors need to know as retailers move higher.

What happened

Shares of Crocs (CROX -2.90%), Coty (COTY -6.34%), and Foot Locker (FL -1.19%), an assortment of retailers, jumped 10% or higher Tuesday morning as the markets received positive news about consumer sentiment and COVID-19 vaccines.

So what

Retailers got a little spark of hope Tuesday when U.S. consumer confidence moved slightly higher in May, suggesting the worst of the economic impact could be behind us as more states open up parts of the economy and reduce restrictions. Consumer confidence moved to 86.6 in May, up from the downwardly revised 85.7 recorded in April.

On the COVID-19 front, Novavax said it began human testing with one of its coronavirus vaccine candidates and could have trial data as soon as July. Merck announced on Tuesday it was working with partners to develop a vaccine and antiviral treatment. "Net, net, the worst may be over for the economy if new home sales and consumer confidence are important for setting the economy's sails in a new direction away from the stormy seas of recession," Chris Rupkey, chief financial economist for MUFG Union Bank, told Yahoo! Finance (a subsidiary of Verizon).

At this point, many retailers are looking for any sign that we could be heading toward economic recovery. Foot Locker recently reminded investors how badly the industry is struggling: Its sales dropped 43% during the first quarter of fiscal 2020. The footwear retailer's bottom line swung to a $70 million loss, compared to the prior year's $173 million profit.

A wall of running shoes in a retail store, under the word Run in neon lighting

Image source: Getty Images.

Crocs received a hat tip from Susquehanna analyst Sam Poser, who said the company's brand awareness and strength has actually improved since the COVID-19 pandemic hit, and thinks that will be reflected when stores begin to reopen. "Much of the strength of the Crocs brand has come from a refocus on the Classic Clog as well as a number of collaborations with compelling brands, retailers, and celebrities," Poser noted to investors. Susquehanna kept a buy rating on Crocs and increased its price target to $27.

Coty, one of the world's leading beauty companies, is a good example of what companies are doing at this point: trying to take a step forward and resume growth. Most companies have drawn liquidity, cut costs, and pushed sales online if applicable; now retailers need to find a growth story despite the negative impact from COVID-19. Coty did that last week by announcing its launch of Kylie Skin in Europe. The company is building a strategic partnership with Kylie Jenner, who brings an admired personality and a hugely influential voice among beauty consumers. Kylie Skin launched in May 2019 and quickly became a top-selling skincare brand in the U.S., so investors have a new growth story to focus on if a similar trend takes place overseas.

Now what

Retailers are mostly moving higher today, as biotech companies make progress on vaccines and drugs to help fight COVID-19, and as consumer sentiment rises. But make no mistake, there's still financial pain to be felt from the economic impact of the pandemic, so take these stock-price pops and drops with a grain of salt.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Crocs, Inc. Stock Quote
Crocs, Inc.
$76.32 (-2.90%) $-2.28
Foot Locker Stock Quote
Foot Locker
$31.51 (-1.19%) $0.38
Coty (Class A) Stock Quote
Coty (Class A)
$6.42 (-6.34%) $0.43

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