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Why Bed Bath & Beyond and Other Retail Stocks Fell Today

By John Rosevear – Jun 24, 2020 at 7:28PM

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A surge in COVID-19 cases is bad news for a couple of reasons.

What happened

Shares of several brick-and-mortar retail chains closed lower on Wednesday, amid renewed fears that a surge in coronavirus cases could halt the ongoing reopening of the U.S. economy. 

Here's where these three companies' stocks ended the session:

  • Bed Bath & Beyond (BBBY 9.02%) closed at $9.35, down 8.7% on the day.
  • Designer Brands (DBI 6.43%), owner of the DSW Designer Shoe Warehouse chain, closed at $6.28, down 9.5%.
  • The Gap (GPS 9.22%) closed at $10.42, down 9.3%.

So what

While the rate of new COVID-19 cases has been declining in New York, the outbreak's early U.S. epicenter, they've been rising in other parts of the country -- and the rate of increase is, well, increasing. According to the Wall Street Journal, 33 states, including several large states that reopened in May, had a seven-day average of new cases on Tuesday that was higher than their average during the past two weeks. 

A Bed Bath & Beyond store.

Will the retail rebound be halted by a surge in coronavirus cases? That possibility weighed on retailers' stocks on Wednesday. Image source: Bed Bath & Beyond.

Among the states with the highest percentage of positive test results over the last week: Arizona, Florida, Texas, and Georgia -- all states that had moved aggressively to reopen their economies last month.

For struggling consumer discretionary retailers, a category that includes all three of these companies, the concerns should be obvious. A return to stay-at-home orders would drive revenue down sharply again, returning these businesses to the cash-crunched survival mode they weathered in April. 

Now what

There's a broader concern: If non-essential businesses in a significant portion of the United States are once again closed down -- either by government orders or by consumers' inclinations -- unemployment will likely increase further, and that in turn would prolong, and likely deepen, the ongoing economic recession. 

A deep, protracted recession could put all three of these companies in real danger. That possibility had to be weighing on investors' minds on Wednesday.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Designer Brands Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Gap, Inc. Stock Quote
The Gap, Inc.
$9.24 (9.22%) $0.78
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
$6.53 (9.02%) $0.54
Designer Brands Inc. Stock Quote
Designer Brands Inc.
$16.23 (6.43%) $0.98

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

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