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Why The Michaels Companies Dived by Nearly 9% on Thursday

By Eric Volkman – Jun 11, 2020 at 6:35PM

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The crafting retailer's stock had been a market darling earlier this week.

What happened

What comes up, must come down.

That old axiom seems to be at work with The Michaels Companies (MIK). Earlier this week the stock was a scorcher, following a very bullish update from an analyst at J.P. Morgan. This momentum reversed on Thursday, with the stock of the arts-and-crafts supply retailer retreating on the day.

Stock graph indicating downward movement

Image source: Getty Images.

So what

J.P. Morgan nearly doubled its target price on the stock and upgraded its recommendation to "overweight" (buy). As businesses reopen in fits and starts, the company will benefit from an improving economy, buoyed by a new management team. No wonder the stock rallied hard in the wake of this glowing assessment.

On Thursday, though, it seems investors banked their gains in recognition of the company's actual recent performance. In its first fiscal quarter, reported last week, Michaels' revenue fell by nearly 30% year over year, on the back of comparable-store sales that cratered at roughly the same rate. Michaels also took a big hit to its earnings, flipping dramatically to a $63.5 million loss.

That quarter, of course, was when the outbreak of COVID-19 widened, engendering shutdowns around the world. It was a very challenging time for retail companies such as Michaels.

Now what

As with other retailers, Michaels' future depends on how the sector will fare in the wake of the novel coronavirus -- the threat of which is still far from being eradicated. Michaels and its peers are still nowhere near out of the woods yet.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends The Michaels Companies. The Motley Fool has a disclosure policy.

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