What Are the Signs That a Company Is Going to Close Down
The "retail apocalypse" has been years in the making. But with the novel coronavirus pandemic in 2020, we saw the number of store closings accelerate. The "new normal" had an adverse affect on brick-and-mortar retail stores. We should expect this trend to continue in 2021.
You may retrieve it'due south just the hard-hitting department stores that are looking to pare downwardly their brick-and-mortar presence. A prime example is JC Penney's (OTCMKTS: CPPRQ ), which after filing for bankruptcy terminal year has sold its operations, with the bankrupt shell (renamed Old Copper Company) holding its real estate assets until information technology completes its reorganization plan with creditors.
But, more resilient chains are also shuttering operations, every bit they cover an increasingly e-commerce dominated retail landscape. For some, announced closings haven't been taken as bad news by investors. Instead, their corresponding share prices accept either rebounded, or headed above, pre-pandemic cost levels.
In short, store closings have been bad news for some retailers, but adept news for others. What are some of the most high-contour retailers shuttering down locations? These five come to mind:
- Bed Bathroom & Beyond (NASDAQ: BBBY )
- Gap (NYSE: GPS )
- GameStop (NYSE: GME )
- L Brands (NYSE: LB )
- Macy'due south (NYSE: Chiliad )
Shop Closings: Bed Bathroom & Beyond (BBBY)
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Domicile goods chain Bed Bath and Beyond airtight dozens of stores in 2020. But it'due south set to close more, equally information technology intends to shutdown 200 locations by 2022. Yet, this hasn't scared investors away from its stock.
Quite the opposite, really. BBBY stock fell from effectually $xv per share into single-digits, every bit the pandemic first hit America nigh a twelvemonth agone. Simply rather than fail to adapt, the company fabricated an ambitious pivot into online retail. This placed it at the forefront of the "shop at home economic system," and ultimately led to an epic rebound in the second half of 2020.
Hitting pre-pandemic price levels by October, shares of the one time overlooked company briefly soared to prices almost $25 per share later that month. Since then, BBBY stock has pulled back to around $xix per share. However, as InvestorPlace'south Brett Kenwell wrote Dec. xxx, there may be additional runway left for this retail comeback story.
Why? As it continues to vanquish expectations with its omni-channel strategy, this still heavily shorted stock could encounter a short clasp. This would fuel a rally in BBBY to even higher price levels. Keep in mind that, even with high skepticism on Wall Street, a full Covid-19 recovery may be already priced into shares. But, with investors seeing shop closings every bit good news rather than bad news, Bed Bath and Beyond remains a retail play to keep on your radar.
Gap (GPS)
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Similar to BBBY stock, GPS stock is another resilient retail name where investors accept past-and-large priced-in a recovery. Admittedly, underwhelming quarterly results took some of the current of air out of its rebound in late Nov. Just, at today'south prices, investors are nevertheless betting on a total recovery sooner than later.
Gap was already in the process of shuttering locations before Covid-19. With the outbreak, this shutdown accelerated. In fact, the retail giant announced that information technology would close 350 locations by 2024. But this may — oddly — be a sign of better times ahead. Although the company is shutting downwardly many of its namesake stores, its other well-known brands (Athleta and Onetime Navy) remain strong.
For the quarter ending Sept. 31, sales for these better-performing brands soared 35% and 15%, respectively. As a result, while its Gap and Banana Commonwealth brands continue to compress, both Athleta and Old Navy go on to expand their brick-and-mortar footprint.
Ultimately, there's plenty of opportunity for near-term gains in GPS stock as the company shuts downwards its less assisting locations and invests more in what works.
GameStop (GME)
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Only half dozen month ago, GameStop was a "cigar butt stock" that attracted only the about contrarian value investors in the game. But since the greater autumn of retail during the pandemic, more investors have jumped on the bandwagon with this declining video game retailer. In fact, GME stock has soared nearly 360% since July x.
Why? There are many reasons. But lately, investors have been interested in what Chewy (NYSE: CHWY ) co-founder, Ryan Cohen, can do have this visitor off the path towards obsolescence. Cohen's activist efforts with GME stock have led to 3 new board seats. GameStop is already aggressively moving out of brick-and-mortar retail, as seen from its announcement to shutter i,000 more locations, in addition to the 780-plus stores it has closed since 2018.
All the same, as promising as this seems, it may be erroneous to say that the company can "crush it" if information technology makes a strong pivot towards an omni-channel retail strategy.
Equally Seeking Alpha commentator Matt Stewart discussed before this month, this "cigar barrel" stock may not have many puffs left. That is to say, investors may believe this company can withal thrive in an era where video games are downloaded rather than bought in physical class. But, given how much of its profitability depended on the auction of pre-owned games, and the fact the industry may no longer need an intermediary once video games are no longer sold in physical form, those seeing this as a future east-commerce play could be barking up the wrong tree.
Dissimilar some of the other retail stocks listed hither, the company's mass store closings expect like the beginning of the end for GME stock.
L Brands (LB)
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Given that 50 Brands is the parent company of Victoria's Secret and Bath & Torso Works, it's no shock this mall-axial retail stock is suffering cheers to the pandemic. The company shut downwardly hundreds of locations due to Covid-nineteen. It likewise projected last May that the closures would go on in 2021 and 2022.
Yet, while LB is reducing its brick-and-mortar presence, the company is thriving overall. Even with Victoria'south Secret posting double-digit in-store sales declines during the vacation flavour, the strength of Bath & Torso Works (both in person and online) more than made up for it.
And these better-than-expected results may be merely the start. The company expects to handily beat prior quarterly earnings projections. Results for the fourth quarter (catastrophe later on this month) are fix to come in at between $two.70 per share and $2.lxxx per share.
With this in mind, the big recovery in LB stock since last Leap — a rally from under $ten per share to nearly $48 per share today — looks more than justified. And, its continued pledge to close down under-performing stores could be a sign shares will go on to head upwards. Information technology's possible that the stock could return to the near-triple-digit price levels last seen in 2016.
Macy'south (One thousand)
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With its legacy peers like JC Penney'southward and Sears (OTCMKTS: SHLDQ ) in the ashcan of retail history, it's like shooting fish in a barrel to encounter the end of Macy'south equally a "when, not if" situation. News of connected shop closures supports this sentiment. After closing thirty stores last year, the company is set to shut 45 more in 2021.
Simply despite the big hurdles its business organization model faces, investors haven't been scared off of Thousand stock yet. Yes, shares took an epic tumble last March (like the rest of the sector). Simply, similar with the more resilient retailers, G stock has bounced back with a vengeance. Since Nov 2020, shares have doubled, from around $six per share to more $12 per share.
Is there enough in its favor to push its share price dorsum to pre-pandemic price levels (around $16 per share)? Possibly. But, every bit InvestorPlace's Josh Enomoto recently discussed, Macy's was already struggling earlier the pandemic. Even with annotator upgrades, he's skeptical the legacy retailer tin can come out of this crisis relatively unscathed.
Simply put, the jury's still out on whether Macy'southward is rebounding. If it's all a mirage, then investors have priced-in an epic recovery that's not actually happening. That'due south a huge amount of chance to buy into.
Consider its news of more than store closings as neither a bullish or surly sign of what lies alee. Only time will give us a clearer picture of M stock'south fate.
On the engagement of publication, Thomas Niel did non take (either direct or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for spider web-based publications since 2016.
Source: https://investorplace.com/2021/01/5-companies-with-more-store-closings-on-the-way/
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