What happened

Shares of Under Armour (NYSE:UAA)(NYSE:UAA)(NYSE:UAA) (NYSE:UAA)Hanesbrands (NYSE:HBI), and Capri Holdings (NYSE:CPRI) were among the big winners Tuesday as the broad market rallied on economic reopenings continuing and signs that more companies were entering the vaccine race.

Apparel retailers have been hit hard by the COVID-19 pandemic as they were forced to close stores, being non-essential retailers. Meanwhile, demand for apparel has declined in general as people no longer have the usual occasions, like work or social gatherings, to purchase new clothes for. Given the sector's weakness, the stocks have responded very favorably to positive macroeconomic news, which lifted shares on the first available trading day of the holiday-shortened week.

Under Armour closed up 6.5%, while Hanesbrands finished up 11.5%, and Capri Holdings gained 13.1%. The S&P 500 finished the day up 1.2%.

A shopper examines a rack of clothes in a clothing store.

Image source: Getty Images.

So what

There was no specific news out on these companies Tuesday, but several different macroeconomic items pushed stocks up. First, Novavax said it had begun combined phase one and phase two clinical trials for its human coronavirus vaccine, which investors have highly anticipated as the stock has rallied in recent weeks. Novavax expects to have phase one results by July. Separately, Merck took a number of steps in developing treatments for the vaccine. The pharma giant acquired Themis Bioscience, a company focused on developing vaccines and treatments for infectious diseases, including COVID-19. It's partnering with IAVI, a non-profit scientific research organization, to develop a COVID-19 vaccine, and it's collaborating with Ridgeback Bio to develop an antiviral treatment for the virus. 

Additionally, economies internationally and in the U.S. took steps to reopen. The U.K. said all non-essential stores would open by June 15, a positive sign for clothing retailers in the country, while Japan said it would move to phase two of its reopening.

In the U.S., the long Memorial Day weekend saw Americans thronging to beaches and other outdoor spaces as they tried to return to their normal lives. All 50 states are in some stage of reopening, and California said parts of the state would now move into phase three, allowing businesses like hair salons to reopen.  

In another encouraging sign, the Conference Board's consumer confidence for May showed a slight uptick from 85.7 in April to 86.6, which was ahead of expectations at 82.3. That indicates that consumers may be more interested in spending on clothing and other discretionary items  than investors had thought.

Shares of Under Armour, Capri Holdings, and Hanesbrands all fell sharply during the beginning of the pandemic, and their stocks have mostly stayed down. Still, stores are beginning to reopen, and some retailers like TJ Maxx-parent TJX Companies have said that customer traffic has been higher than expected and above year-ago levels, pointing toward pent-up demand from customers.

Now what

Results at all three of these companies will be dismal through the first half of the year as they have all taken emergency measures like drawing down credit facility and cutting costs through layoffs, furloughs, or salary reductions in order to make it through the crisis.

The big question at this point is how consumers respond once these stores reopen. Though social distancing and other safety protocols are likely to present some obstacles, some of the recent news items are favorable for these companies' reopenings. Under Armour and Hanesbrands are likely in a stronger position than Capri Holdings as they sell exercise clothes and basics, which consumers will need regardless of cultural shifts from work-from-home policies and a lack of social gatherings. Capri, on the other hand, which owns brands like Michael Kors, Jimmy Choo, and Versace may find consumers less interested in purchasing handbags, shoes, and other fashion items.

The recovery is likely to be a slow one, but it looks like the worst has passed for these apparel retailers. 


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