Stocks enjoyed modest gains today, reversing course after yesterday’s late sell-off, which was spurred by persistent concerns over tariffs, trade tensions, and potential investment restrictions between the U.S. and several of its largest allies.
But shares of some individual companies fell nonetheless. Read on to learn why Zillow Group (NASDAQ: Z) (NASDAQ: ZG), Pier 1 Imports (NYSE: PIR) and Chipotle Mexican Grill (NYSE: CMG) underperformed the market today.
Zillow Group is raising cash
Class A shares of Zillow Group fell as much as 5.5% early today, but recovered to close down 2.8% after the online real estate platform leader proposed public offerings of $325 million of Class C stock, and $325 million of debt in the form of convertible senior notes due 2023. Zillow is also giving its underwriters a 30-day option to purchase up to $48.75 million each in shares and notes.
Make no mistake, given Zillow’s relatively modest market cap (less than $8 billion) — and even assuming the underwriters don’t take advantage of their options — the aggregate $650 million in new shares and debt is a huge sum.
So what does Zillow plan to do with all the cash? According to the company, it will use the proceeds for a combination of general corporate purposes and potentially to “expand its current business through acquisitions of, or investments in, other businesses, products or technologies.”
Zillow also notes it doesn’t have any definitive agreements for such acquisitions or investments yet. But we know the company isn’t afraid of expanding its reach this way; in addition to its namesake site, in recent years Zillow has acquired other competitors and industry players including Trulia (which also owns RealEstate.com), New Home Feed, Naked Apartments, StreetEasy, HotPads, and dotloop.
So while Zillow stock fell on news of this dilutive share offering and new debt, something tells me it won’t be long before we know more about its end game.
Pier 1’s drab quarter
Pier 1 Imports stock plummeted 19% after the home furnishings and decor retailer announced mixed first-quarter results. The company’s revenue fell 9.2% year over year to $371.9 million, driven by store closures and an 8.2% decline in comparable-store sales. That translated to a net loss of $28.5 million, or $0.36 per share.
By comparison, most investors were looking for an even larger net loss of $0.39 per share, but on higher revenue of $376.8 million.
CEO Alasdair James pointed out that Pier 1’s performance was essentially in line with expectations, adding that it’s on track with the execution of its three-year strategic plan — unveiled in April — while preparing for the relaunch of the Pier 1 brand this fall.
Looking ahead to the second quarter, the retailer expects comparable sales to decline in the range of 7% to 6%, and to incur a per-share loss of $0.58 to $0.54. Most investors were modeling a narrower net loss of $0.22 per share on a smaller 3.9% drop in revenue.
Chipotle investors cool on new growth strategy
Finally, shares of Chipotle Mexican Grill fell 6.3% today after the fast-casual burrito maker outlined a new approach to revitalizing its growth, but offered little in the way of financial details or time frames to support the plan.
Chipotle will primarily work toward three initiatives: Revamping its marketing communications and menu innovation, leveraging its “second make line” — that is, the second set of food preparers — to increase digital sales and expand access, and launching a new loyalty program in 2019 to improve customer engagement. Chipote’s strategy also entails moving offices and closing underperforming restaurants, which will result in non-recurring costs in the range of $115 million to $135 million over the next several quarters.
“I can easily see a future where Chipotle more than doubles the business to $10 billion in revenue,” teased CEO Brian Niccol.
That’s all well and good, but CFO Jack Hartung added that it’s still “too early to predict the timing and precise impact each of these strategies will have on results.”
So while Chipotle may be taking the right steps to drive exceptional results over the long term, it’s clear that our market hates being told to hurry up and wait.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.