What happened
Joann (JOAN 29.65%) stock beat a rising market this week. The arts and crafts specialist's stock rose 19% through Thursday trading, according to data provided by S&P Global Market Intelligence, compared to a 2% boost in the S&P 500. That spike helped put the company closer to the performance of the wider market so far this year, down 18% while the S&P has shed 16%.
The rally was powered by rising optimism that Joann's sales declines might start moderating in late 2022.
So what
Management revealed in an early-September announcement that sales fell 6% in the Q2 selling period that ended in late July. CEO Wade Miquelon said in a conference call that he believes the economy is in the midst of a recession, which tends to reduce demand for discretionary and specialty retail.
However, Joann's sales trends improved throughout the quarter, management said, implying stability and a potential return to growth in the near future. The company is also cutting costs, which is helping boost cash flow and profitability. These actions should help losses improve considerably from the $57 million loss the company just reported.
Now what
Management also said Joann's inventory is "extremely healthy" right now, and that the business tends to be among the first specialty retailers to lead the industry out of any recessionary pullback. These factors have many investors feeling more confident in a sales and earnings rebound over the next few quarters.
Still, given the company's net losses and declining sales through late July, it might make more sense to watch this stock from the sidelines until there's more evidence of a sustainable rebound.
Joann might see a return to sales growth in the fall and holiday shopping seasons. And cash flow should improve in the second half of 2022 thanks to cost cuts and reduced inventory purchases. But there are more attractive growth stocks for investors to consider right now.
