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V.F. Corp Closes Stores in China Due to Coronavirus Outbreak

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The outbreak of coronavirus in China has given rise to a tough situation for companies operating in the region. Leading Textile - Apparel retailer V.F. Corporation (VFC - Free Report) is among the companies that are anticipating the current situation in China to have a material impact on its results. On Feb 7, V.F. Corp announced that it has temporarily closed about 60% of its owned and partnered stores in China in response to the coronavirus outbreak.

Further, it noted that the open stores are witnessing substantial declines in retail traffic. Given the epidemic outbreak in the country, V.F. Corp is prioritizing on health and safety of employees and its partners. Consequently, it expects Asia Pacific operations to witness softness in the near term, which should have a pronounced impact on overall results.

In fiscal 2019, the Asia Pacific region and Mainland China accounted for nearly 12% and 6%, respectively, of the company’s total revenues. Although it is not possible to measure the impact of the coronavirus outbreak on its supply chain at the moment, the company states that around 16% of its total cost of goods sold is sourced directly from Mainland China. Nearly 7% of these are transported to the United States.

The company also stated that the current situation was not accounted for in its fiscal 2020 guidance, which was provided during its third-quarter fiscal 2020 results. During the fourth-quarter earnings call, it expects to provide an update on financial and operational impacts from the coronavirus outbreak on its results.

However, for the long term, the company remains confident about the sustainability of its brands and business momentum in China and across the Asia Pacific regions affected by coronavirus. It continues to see China as a key long-term opportunity. The company’s diversified business and operating model in other key regions keep it well placed to navigate the impact of the coronavirus condition.

For fiscal 2020, the company had earlier anticipated revenue growth of $11.75 billion, indicating increase of 5% from the year-ago reported figure (and 7% in constant dollars). It envisioned adjusted earnings per share of $3.30, indicating 15% growth from the year-ago period (18% at constant currency).

We note that shares of this Zacks Rank #4 (Sell) have declined approximately 17% so far in this year wider than the industry’s decline of 7.1%.

Key Picks

G-III Apparel Group, Ltd. (GIII - Free Report) delivered positive earnings surprise of 11.3%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corporation (RL - Free Report) has a long-term earnings growth rate of 9.6% and a Zacks Rank #1.

lululemon athletica inc. (LULU - Free Report) has a long-term earnings growth rate of 18.8%. It currently sports a Zacks Rank #2 (Buy).

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