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Ralph Lauren Expects Coronavirus to Affect Q4 Sales in Asia

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Ralph Lauren Corp. (RL - Free Report) is the latest among the companies to provide an update on the expected impact of the coronavirus outbreak in China on its results. It expects the current situation in China to have a material impact on its results as nearly two-thirds of its stores in mainland China have been temporarily closed over the past week.

Further, reduced travel and retail traffic across its businesses in China, and parts of Asia are likely to significantly hurt the company’s results in the fourth quarter of fiscal 2020. Given the epidemic outbreak in the country, Ralph Lauren is prioritizing the health and safety of employees, consumers and its partners.

For fourth-quarter fiscal 2020, the company estimates the current situation in China, Japan and Korea to hurt net sales by $55-$70 million and operating income by $35-$45 million in Asia. Further, the company expects its global orders in the fourth quarter to be impacted by supply chain disruptions in China. However, it stated that the estimates might change if the current trends in the region deteriorate.

On its last earnings call, Ralph Lauren had hinted of potential impacts of the coronavirus outbreak in China and nearby regions on its results. Till then, the company temporarily closed nearly half of its store fleet in China, reflecting about 110 store closures.

Nevertheless, the company continues to remain optimistic about the long-term growth trends for its business in China and Asia. In the past two years, it has elevated the brand in Asia, particularly China, and built strong business foundation by enhancing the quality of sales and profitability.

In third-quarter fiscal 2020, Ralph Lauren opened 37 stores and delivered constant currency revenue growth of 5.4% in Asia. Further, it continued to witness strong growth in key markets, with more than 30% constant-currency revenue growth in mainland China. However, total China sales were up 6%, owing to disruptions in Hong Kong.

Other companies that recently closed stores due to coronavirus outbreak are V.F. Corp (VFC - Free Report) , NIKE (NKE - Free Report) and PVH Corp (PVH - Free Report) . NIKE temporarily closed nearly half of company-owned stores in Greater China, while V.F. Corp closed about 60% of its owned and partnered stores in China. Moreover, PVH Corp closed the majority of the Tommy Hilfiger and Calvin Klein stores (company-operated and franchise) in China.

Price Performance

The update on the impacts of coronavirus on Ralph Lauren’s Asia operations had a little impact on its stock performance on Feb 13, with shares moving down just 0.6%. Analysts expect the aforesaid impacts on Asia operations to only slightly hurt the company’s overall results as it is currently under-penetrated in China, making for only 4% of total company business.

In the past three months, the Zacks Rank #1 (Strong Buy) stock has gained 9.2% compared with the industry’s growth of 2.5%.

 



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