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  1. Home
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3 Recent Doormats in Retail Suddenly Spring to Life

Fossil Group, Michaels Companies and GameStop surged higher on Monday, likely for their own unique reasons.
By JONATHAN HELLER
Jun 09, 2020 | 10:00 AM EDT
Stocks quotes in this article: FOSL, MIK, GME

Many downtrodden names really had quite a day on Monday. That included some that suffered to a greater degree than most during the great pandemic meltdown of 2020. These companies generally had a flea or two prior to the pandemic, but recent movements are unlike anything I've seen previously, and I know I've been saying that a lot these days.

Retail was in trouble long before the pandemic, and that's when stores were actually open and customers were allowed in the doors. A forced and near-total shutdown of many retailers, the unthinkable, probably hastened or will hasten the bankruptcies of some. However, markets again may be rethinking who will be next and when they will succumb, all of which has led to some terribly inefficient markets. That inefficiency, by the way, can be great for investors. 

Specialty retailer Fossil Group (FOSL) , the subject of Friday's column, jumped 54% to $8.10 on Monday to a five-month high. Why, I am not quite sure, but it likely was a combination of a new credit agreement announced after the market close last Friday that waived leverage ratios for fiscal 2020 and the first three quarters of 2021; perhaps some short covering, given that about 29% of shares were sold short; and the lifting of the veil as retail is reopening. It's nice to be back above water with my second-ever FOSL position, especially because I broke a self-imposed rule: take a position, and once it is closed, move on.

Arts and crafts name Michaels Companies (MIK) (up 59%) also had a huge day. Shares that traded in the mid-$1 range in March hit $8.74 on Monday. This move was easier to explain, as J.P. Morgan upgraded MIK to "overweight" and added it to its "U.S. Equity Analyst Focus List." Short covering may also have helped, with 40% of Michaels' shares sold short.

Finally, struggling gaming retailer GameStop Corp. (GME) rose 21%. Another name with massive short interest, it is also a situation that could be coming to a head given the current proxy contest that will be settled on Friday at the annual meeting.

The thing that has made the GameStop proxy fight even more interesting is that both Glass Lewis and ISS last week recommended investors side with the activists (Hestia and Permit) and vote for their director candidates Kurt Wolf and Paul Evans. I've followed a lot of these situations over the years, and in my experience the proxy firms have rarely supported the activists. It may just be those proxy fights that I've been interested in, because last year Glass Lewis supported activists 33% of the time, while ISS did the same 43% of the time.

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At the time of publication, Heller was long FOSL and GME.

TAGS: Activist investing | Corporate Governance | Investing | Stocks | Value Investing | Apparel | Consumer | Retail | Real Money

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