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Coronavirus Rips Apart Apparel Industry: 4 Players Raise Alarm

Sumit Singh

The rapidly spreading novel coronavirus has rattled the stock market and almost disrupted economic activities worldwide — denting demand, hurting supply chain, slowing down production activities and temporary closure of brick-and-mortar locations. COVID-19, a global pandemic, has infected more than 121,000 people across Asia, Middle East, Europe and the United States, and the death toll has crossed 4,000.

The outbreak has wreaked havoc impacting industries like Auto, Pharma, Electronics, Tourism & Aviation, Technology, Restaurants, Cosmetics and Apparel. Several companies have cautioned regarding their upcoming revenues and earnings results. Quite apparent, a dip in consumer confidence — thanks to market turmoil — is likely to hurt the spending activity, and no doubt retailers will be at the receiving end.

4 Apparel Players Bearing the Brunt

Recently, Urban Outfitters, Inc. URBN informed investors on current business trends that have emerged since its last earnings call on March 3. The apparel retailer informed that it has witnessed a fall in traffic and decline in sales across areas such as Milan, Italy and Seattle, Washington, which are severely impacted by coronavirus. However, this Philadelphia, PA-based company provided an update declaring that it has not experienced any significant impact across its stores in other locations and digital platform due to the outbreak.

Management stated that currently it is not in the position to forecast the impact of COVID-19 on the business in the first quarter. We note that shares of this Zacks Rank #3 (Hold) company was down 7.4% during the trading session on March 11. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We note that coronavirus-led worries weighed on the guidance of Capri Holdings Limited CPRI, owner of Versace and Jimmy Choo brands. In spite of reporting better-than-expected third-quarter fiscal 2020 results, management trimmed fiscal 2020 projection on account of the coronavirus outbreak in China, which the company believes will significantly hurt its financial results.

Capri Holdings had earlier informed that roughly 150 out of its 225 stores in mainland China are currently closed. Moreover, some of the outlets are operating with reduced hours and witnessing lower footfall. Given the current scenario in China, this Zacks Rank #4 (Sell) company expects revenues and earnings per share to be hit by approximately $100 million and 40-45 cents a share, respectively, in both fourth quarter and fiscal 2020.

Tapestry, Inc. TPR, which reported better-than-expected second-quarter fiscal 2020 results, revised fiscal 2020 projection on account of coronavirus outbreak in China, which it believes is significantly impacting its business. The company has to close majority of its outlets on the Mainland. Given the current scenario in China, Tapestry expects sales and earnings per share to be hit by approximately $200-$250 million and 35-45 cents a share, respectively, in the second half.

The company, which owns brands such as Coach, Kate Spade and Stuart Weitzman, envisions fiscal 2020 net sales to be approximately $5.9 billion and earnings per share in the band of $2.15-$2.25. This indicates year-over-year decline from net sales of $6.03 billion and earnings of $2.57 per share reported in fiscal 2019. This Zacks Rank #3 company had earlier guided fiscal 2020 net sales increase at a low-single-digit rate with earnings per share expected to be even with the prior year.

Clothing retailer Abercrombie & Fitch Co. ANF, which reported better-than-expected fourth-quarter fiscal 2019 results, expects first-quarter fiscal 2020 sales to be down mid-single digits from the prior-year quarter. This includes an adverse impact of nearly $40-$50 million due to COVID-19 outbreak. For fiscal 2020, Abercrombie estimates flat to 2% rise in sales, indicating the estimated adverse impact of COVID-19 in the range of $60-$80 million.

Meanwhile, this Ohio-based company anticipates first-quarter comps to be down mid-single digits, indicating the estimated adverse impact from COVID-19 of roughly 600 bps. For fiscal 2020, this Zacks Rank #3 projects comps to be down low single digits, which include predicted adverse impact of COVID-19 of around 200 bps. The company’s manufacturing exposure to China was 22% in fiscal 2019 down from 36% in fiscal 2018. Management plans the same to be in the low-teens in fiscal 2020.

Shares of Tapestry, Abercrombie & Fitch, Urban Outfitters and Capri Holdings are down 34.8%, 37.1%, 42.9% and 50.6%, respectively, so far in the year.

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