Wayfair is a Zacks Rank #1 (Strong Buy) that is a leading online seller of home good products, consisting of furniture and home décor. The company is well positioned in the current lockdown environment as consumers get tired of their homes and look to remodel. Since most retail stores are closed, Wayfair is seeing more traffic and more customers.
The COVID Effect
When investors panicked in March, Wayfairs stock plunged to $22, down 80% from it January high of $112. However, the stock has seen a massive rally since, seeing a 500% bounce off the lows.
How is this bounce possible?
In March, it was full panic mode and the selling was relentless. But when investors started realizing that some companies might benefit from the stay at home environment, Wayfair shot to the top of the list. With most retail competition closed for the short-term, Wayfair has thrived catering to people that have time to remodel homes.
The company announced in early April that they will meet or exceed their Q1 guidance due to revenue growth. Here is a statement from the company:
Wayfair continues to see strong demand across most home goods categories in both its US and International segments. After entering the month of March with gross revenue growing at slightly below 20% year-over-year, consistent with January and February growth rates, Wayfair saw this rate of growth more than double towards the end of March. This run-rate has continued into early April.
The stock had already bounced to $50 before this positive news. However, the guide for Q1 accelerated the move and the stock shot up to $60 that day and has doubled from there since.
The question going forward is if all the news is priced in and if there is more room higher.
On Friday, Penney filed for chapter 11 bankruptcy protection in Texas, becoming the biggest in a parade of retailers to seek a court restructuring during the coronavirus pandemic. Neiman Marcus Group Inc., J.Crew Group Inc. and Stage Stores Inc. have all filed for bankruptcy this month.
The 118-year-old Penney is the latest American retailer to seek bankruptcy protection as the rise of fast-fashion, off-price chains like T.J. Maxx and e-commerce giants such as Amazon.com Inc. win over younger shoppers. Other chains like Gap Inc. and Nordstrom Inc. have recently raised billions in debt to ensure they have the cash to weather the crisis and reopen stores.
The U.S.-listed shares of Canada Goose Holdings Inc. GOOS, -7.15% dropped 7.1% toward a six-week low in midday trading Friday, after BofA Securities analyst Robert Ohmes turned bearish on the Canada-based outerwear company, citing risks to next fiscal year's earnings as the COVID-19 pandemic retrains international tourism. Ohmes cut his rating to underperform from neutral, and stock stock price target on the U.S. shares by 38%, to $15 from $24. "We estimate that ~50% of [Canada Goose's] N. America & Europe demand is driven by international tourism (mostly from China) which we expect to remain restrained through yearend given strict social distancing guidelines and fear of a potential "2nd wave" with current China tourists to the U.S./Canada tracking down ~90%/60%, respectively," Ohmes wrote in a note to clients. "Signs of a maturing N. America market may be further pressured by a tough wholesale environment given GOOS's mall-based footprint (Neiman Marcus, Nordstrom, Bloomingdales, etc.)." He added that he expects "traffic headwinds," given the company's small-store format, as social distancing guidelines are likely to limit occupancy. The stock has plunged 47% year to date, while the S&P 500 SPX, +0.39% has lost 12%.
Shares of several brick-and-mortar retailers were trading higher on Wednesday morning as the broader market rallied for a second day on rising optimism about the post-pandemic economy.
Here's where things stood for these four companies' stocks as of 10:45 a.m. EDT, relative to their closing prices on Tuesday.
Designer Brands (NYSE:DBI) was up 5.2%. Gap (NYSE:GPS) was up 5.5%. Kohl's (NYSE:KSS) was up 5.5%. Macy's (NYSE:M) was up 8.4%.
The broader U.S. markets were trading higher on Wednesday morning amid signs that the White House and Congress may be moving toward an agreement on additional measures to bolster the U.S. economy amid historically high unemployment. Stocks of companies that have been hit the hardest by the effects of the coronavirus pandemic, including airlines, travel stocks, and retailers, were among the best performers.
There was no company-specific news driving any of these four retailers' stocks on Wednesday. But Macy's drew considerable interest from consumer-discretionary investors on Tuesday, when it announced a refinancing plan that should give it sufficient liquidity to weather the downturn while continuing its restructuring efforts.
Macy's said on Tuesday that it is offering $1.1 billion in senior notes secured by some of its real estate assets. It will use the proceeds of that offering, plus some additional cash on hand, to pay off its $1.5 billion revolving credit line. Once that debt is retired, it said, it will enter into an agreement for a new $3 billion credit line secured by the majority of its inventory.
That plan is arguably good news for the entire retail sector. While the department store giant had to pledge assets to secure funds, the deal shows that the credit markets remain open to retailers -- even retailers like Macy's, which had been struggling before the onset of the pandemic.
Meanwhile, Kohl's reported last week that it lost $541 million in the fiscal quarter that ended on May 2, a worse result than Wall Street had expected, but said that it is continuing to reopen stores and that its online sales had held up better than expected while its brick-and-mortar locations were closed.
Now what While Kohl's reported earnings last week, investors can look forward to updates from the other three companies in the not-too-distant future. Gap will report its fiscal first-quarter results after the market closes on June 4, Macy's will report next on July 1, and while Designer Brands hasn't yet announced a date for its fiscal first-quarter report, it's expected to arrive within the next couple of weeks.
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