The global pandemic sent ripples through the retail sector, forcing many to close shop and even file for bankruptcy, but is the worst behind us?
Sept. 7, 2020
Some retailers are recovering better than expected following the economic downturn, just like Urban Outfitters (NASDAQ: URBN), which recently outdid analysts’ expectations when it posted $803 million in sales for its second quarter compared to the predicted $672 million. While much of the company’s success, along with others in the industry, has been driven by strong e-commerce sales, it might be a sign that investors should start putting their money back into the industry sooner rather than later.
How Urban Outfitters is succeeding
While the popular clothing retail company was hit hard during the first quarter when the virus sent the world into lockdown, losing around 50% of its value, it has rallied since. The multi-million dollar U.S. government stimulus package for businesses, along with a double-digit sales growth, helped Urban Outfitters post an optimistic quarterly result.
The American company revealed a net income of $34 million for the recent quarter. Despite the net income being substantially lower than the $60 million it posted a year prior, it is still a sign that the business is able to bounce back in a post-COVID-19 environment.
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What about other retailers?
The coronavirus worsened the ‘retail apocalypse’ which sent a number of well-known companies to file for bankruptcy protection, including businesses such as J.C Penny, which was struggling in the market prior to the pandemic, and J. Crew Group which was already experiencing debt problems.
But there is a light at the end of the tunnel for others like Urban Outfitters, with Dick’s Sporting Goods posting a 15% jump in shares following strong online sales — up 194% compared to the previous quarter. There are also real success stories with the likes of fitness retailer Nike (NYSE: NKE), which sweated out a 30% increase in its e-commerce sales for the recent quarter.
Should you consider investing in retail stocks?
There are clearly some retail companies performing much better than others during this tough economic period. American businesses that were already struggling before the pandemic hit are not likely to recover. However, there are many that are shifting their focus to online sales to keep the business going, which has so far proven relatively successful.
While some are recovering slower than others, the industry is heading in the right direction as brick-and-mortar stores start to open back up and China begins to ramp up its production of products it supplies to businesses. I would be investing in retail again, but with caution. I would only be backing those like Urban Outfitters that are showing positive gains for the future.
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