The 'Sticky' Challenges Driving This Joann Analyst's Downgrade

Joann Inc. JOAN reported disappointing results and its first-quarter print indicated that some challenges are likely to be “sticky,” according to BofA Securities.

The Joann Analyst: Elizabeth Suzuki downgraded the rating for Joann from Buy to Neutral while reducing the price target from $20 to $8.

The Joann Takeaways: The company reported lower-than-expected total and comp sales, while its adjusted operating margin contracted in the quarter, Suzuki said in the downgrade note.

“We expect operating margin to remain under pressure on a YoY basis while same-store sales growth remains negative (which management expects to be the case for the next 2-3 quarters),” the analyst wrote.

“Now that freight contracts have been negotiated for the year (at a higher rate than a year ago), presumably there will be lower non-recurring freight costs, but higher recurring freight costs,” Suzuki mentioned in the note.

“Another medium-term headwind — impacting demand for discretionary retail categories overall as well as margins — is inflation, which could take time to abate,” she added.

JOAN Price Action: Shares of Joann lost 19.49% Friday, closing at $6.36.