Fashion’s fourth-quarter reckoning is coming — just as worries over the spreading coronavirus send Wall Street investors scurrying for safety.
The Dow Jones Industrial Average followed European markets lower on Monday and plummeted 1,031.61 points, or 3.6 percent, to 27,960.80 after outbreaks as far-flung as Italy and South Korea suggested a new and more dangerous phase of the coronavirus — or at least of the disruption it’s causing. The market is now back to where it was in mid-December.
That has companies as diverse as Macy’s Inc., Revolve Group Inc., Hermès International, J.C. Penney Co. Inc., Farfetch, TJX Cos. and Gap Inc. reporting quarterly results this week into something of a stock market maelstrom.
Those and other high-profile fashion companies are feeling the pressure of a market made skittish by the massive disruptions of the coronavirus. Already investors were none too friendly to retail, especially after Walmart Inc.’s results last week painted a picture of a tougher quarter than was anticipated.
Among the decliners in New York on Monday were Farfetch, down 11.6 percent to $10.86; Revolve, 10 percent to $18.86; Fossil Group Inc., 9.1 percent to $5.46; Tapestry Inc., 8.7 percent to $25.55; Ralph Lauren Corp., 6.7 percent to $109.61; Macy’s, 4.8 percent to $15.45; Gap, 4.5 percent to $16.29; Penney’s, 3.1 percent to 69 cents, and TJX, 2.5 percent to $61.75.
Getting hit in Europe were Tod’s, down 11.4 percent to 31.12 euros; Salvatore Ferragamo, 8.9 percent to 14.54 euros; Moncler, 5.4 percent to 35.16 euros; Kering, 4.7 percent to 535.10 euros; LVMH Moët Hennessy Louis Vuitton, 4.7 percent to 385.65 euros, and Burberry Group, 4 percent to 17.95 pounds.
As quarterly results roll out, investors who have been moving more money into gold and other presumably safer havens could seize on any tiny hint of weakness and hit sell — or overlook even a massive shortfall in the quickly moving market.
It’s a volatile situation and all the more so because the coronavirus is a new and uncertain threat. Out of 79,553 confirmed cases worldwide, there have been 2,628 deaths, a tally by Johns Hopkins University showed. As of now, that makes the outbreak less deadly overall than the seasonal flu, which has killed between 16,000 to 41,000 in the U.S. this season, according to the Centers for Disease Control and Prevention.
Although there are still too many questions about the new coronavirus to know the full extent of the threat, the global reaction to the outbreak has nearly everyone in fashion feeling it in some way.
Macy’s weighs in with fourth-quarter numbers on Tuesday — and although the department store has already taken its lumps, revealing sales declines, store closures and a three-year restructuring program — investors were moving further away on Monday in the general market retreat. The department store operator has little direct exposure to the coronavirus compared to others and was still swept up in the roller-coaster trading session.
Companies with more exposure could be in for even wilder swings.
Farfetch, which reports its fourth-quarter results on Thursday, has proven to be a complicated story for investors to follow, with the sales platform going into the apparel production business via the $675 million acquisition of New Guards Group in August. Although more experts are warming to the company’s evolving mission, there is now some coronavirus confusion being thrown into the mix.
Cowen analyst Oliver Chen said that over the long run, Farfetch “is well positioned to attract the younger generation of luxury shoppers” while Off-White, which is licensed by New Guards, “continues to resonate strongly with consumers.”
Even so, the outlook will be a key focus.
Chen said over a third of Farfetch’s sales come from the Asia-Pacific region, with up to 28 percent of the e-commerce firm’s overall take from Mainland China.
Just two months ago, having a third of one’s luxury business in the gigantic Chinese market was a big plus. At least for now, it’s a source of agita. The sales slowdown in the country is significant and is accompanied by tangled-up supply chains.
“While Farfetch does not have any physical stores in Mainland China, challenges around logistics and delivery, and comments from other retailers noting lower e-commerce sales may indicate sales declines in Mainland China,” Chen noted. “We believe January did not see a material impact from the virus outbreak, but February and March could see sales declining by [approximately] 50 percent or more in Mainland China, which implies 10 percent to 40 percent year-over-year sales declines in China in the first quarter.”
For fashion, the coronavirus hit sales in China first, shutting down stores in Wuhan — the center of the initial outbreak. But as the outbreak progressed, more of China went under virtual lockdown and the impact stated rippling out. Duty-free shops and travel-heavy destination stores in big cities around the world felt the loss as Chinese shoppers stayed home. Factories were slow to reopen after the Lunar New Year and business and other travel slowed and then stopped.
Primark parent Associated British Foods said Monday that the impact on supply chains continues to evolve.
“Primark sources a broad assortment of its product from China,” the company said. “We typically build inventories in advance of Chinese New Year and, as a consequence, are well stocked with cover for several months and do not expect any short-term impact.
“We are working closely with our suppliers in China to assess the impact on their factories and supply chains and their ability to fulfill our current orders,” the retailer said. “If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases. We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions.”
Where the coronavirus goes, business slows.
One-hundred fifty new cases were reported in Italy over the weekend and the impact was immediate. In Milan, Giorgio Armani held his runway show in an empty theater, settling instead to show his looks via video online, while the eyewear show Mido, slated to start Feb. 29, was postponed, as was the Cosmoprof fair in Bologna.
The FTSE MIB index in Milan led European markets lower, closing down 5.4 percent to 23,427.19 on Monday and the European Commission kicked into high gear, noting it was “working around the clock to support EU member states and strengthen international efforts to slow the spread” of the outbreak. To that end, the commission revealed a 232-million-euro aid package.
“As cases continue to rise, public health is the number-one priority,” said Ursula von der Leyen, president of the commission. “Whether it be boosting preparedness in Europe, in China or elsewhere, the international community must work together. Europe is here to play a leading role.”