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March 31, 2020, 11:52 a.m. EDT

Coronavirus pandemic raises concerns that some retailers will run out of cash

E-commerce will help, but it can’t save the day, according to Moody’s

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By Tonya Garcia, MarketWatch

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Goldman also downgraded Under Armour Inc. /zigman2/quotes/208967132/composite UA +1.77% /zigman2/quotes/204420722/composite UAA +1.87%  to neutral from buy, and cut its price target to $9 from $21.

See: Walmart stock wins second upgrade of the week as shoppers flock to grocers amid coronavirus

Analysts said 2020 was intended to be a “reset year” after the company had lost “brand momentum,” and was investing in marketing to turn things around. In the current environment, Goldman is expecting Under Armour to struggle to fund that investment, while its efforts to sell at full price will be at risk if sales disruption continues.

UBS said that even companies with billion of dollars on hand can find liquidity coming under pressure. The average “softline” company that UBS covers has $1.95 billion in liquidity, equal to about 15% of sales. A softline company sells primarily apparel and shoes.

Ralph Lauren Corp. /zigman2/quotes/207257694/composite RL +1.65%   has $2.4 billion and Under Armour, $2.0 billion each accounting for about 38% of calendar year 2019 sales, UBS said.

Nike Inc. /zigman2/quotes/203439053/composite NKE +1.40%  has $5.5 billion in liquidity accounting for just 14% of 2019 sales.

UBS says its channel checks indicate retail sales are down 50% or 60% over the last week. That includes e-commerce, which in some regions has partially replaced shopping at physical locations.

“We think consumers are spending less not only because they want to avoid stores, but also because the situation in general, including the stock market drop, has significantly eroded consumer confidence,” analysts said.

On a positive note, UBS says these companies can “absorb” even a 20% sales decline for calendar 2020. However, in a bear case where earnings declines are worse than in the 2008-2009 financial crisis, there could be retail bankruptcies and inventory disruptions.

Also: Target rings up additional $300 million in first-quarter costs as March food and beverage comps soar 50%

Moody’s is forecasting that operating income for the U.S. retail industry will fall 2% to 5% in 2020, with sales flat to down 3%. Even with stores closed, retailers will have to pay rent and most have said they will continue to pay staff, adding to pressure from sales declines and squeezed margins.

And while some e-commerce retailers like Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -1.78% and Chewy Inc. /zigman2/quotes/212690528/composite CHWY -3.23% , along with retailers with curbside pickup like Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.48% and Target Corp. /zigman2/quotes/207799045/composite TGT +2.12% have benefited from a growth in online purchasing, particularly in grocery, digital sales won’t save the day.

“[M]ost bricks-and-mortar operations will not be able to offset the steep loss from store sales with their online platforms, even for those such as The Gap Inc. /zigman2/quotes/206554267/composite GPS +3.00% , Nordstrom Inc. /zigman2/quotes/203902116/composite JWN +4.71% , and Macy’s, which have invested heavily in e-commerce capabilities,” Moody’s said.

“Meanwhile, store closures are starting to permeate into distribution centers, with L Brands, Inc. /zigman2/quotes/202062875/composite LB +3.09% and TJX Cos. /zigman2/quotes/203136811/composite TJX +3.82% announcing temporary closures of their distribution centers. Although L Brands and TJX do not have a very high online penetration, this will not bode well for overall e-commerce sales if this trend accelerates.”

Malls are also expected to take a hit, with Coresight Research finding that they are number three on a list of places that people are avoiding most. (Numbers one and two are movie theaters and restaurants/bars/coffee shops, respectively).

Don’t miss: Best Buy sees surge in demand for items that help people work from home

Coresight Research conducted a poll of U.S. adult consumers on March 17 and March 18.

If the outbreak worsens, malls jump to the top spot. UBS analysts hold out hope that the troubles for the sector will be short-lived.

“[W]e think people would want to get back to their normal habits as soon as possible and may consider the Covid-19 risk low enough that they are willing to go back to malls,” UBS wrote in a separate note published last week.

“Even if they don’t want to visit malls as much, we think this could get offset by them shopping online more and we assume online retailers will continue making deliveries. Plus, consumers may reallocate money normally spent on travel, restaurants, etc. to other categories such as apparel and footwear.”

/zigman2/quotes/208967132/composite
US : U.S.: NYSE
$ 9.20
+0.16 +1.77%
Volume: 3.31M
Aug. 7, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$4.43 billion
Rev. per Employee
$346,212
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/zigman2/quotes/204420722/composite
US : U.S.: NYSE
$ 10.33
+0.19 +1.87%
Volume: 5.37M
Aug. 7, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$4.43 billion
Rev. per Employee
$346,212
loading...
/zigman2/quotes/207257694/composite
US : U.S.: NYSE
$ 65.96
+1.07 +1.65%
Volume: 1.92M
Aug. 7, 2020 4:03p
P/E Ratio
40.72
Dividend Yield
0.00%
Market Cap
$4.82 billion
Rev. per Employee
$269,638
loading...
/zigman2/quotes/203439053/composite
US : U.S.: NYSE
$ 101.86
+1.41 +1.40%
Volume: 5.55M
Aug. 7, 2020 4:00p
P/E Ratio
64.49
Dividend Yield
0.96%
Market Cap
$158.89 billion
Rev. per Employee
$529,466
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,167.46
-57.54 -1.78%
Volume: 3.94M
Aug. 7, 2020 4:00p
P/E Ratio
121.75
Dividend Yield
N/A
Market Cap
$1586.55 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/212690528/composite
US : U.S.: NYSE
$ 54.91
-1.83 -3.23%
Volume: 3.06M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$22.05 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 129.97
+0.62 +0.48%
Volume: 5.52M
Aug. 7, 2020 4:00p
P/E Ratio
24.72
Dividend Yield
1.66%
Market Cap
$368.07 billion
Rev. per Employee
$223,654
loading...
/zigman2/quotes/207799045/composite
US : U.S.: NYSE
$ 131.75
+2.74 +2.12%
Volume: 2.30M
Aug. 7, 2020 4:02p
P/E Ratio
24.42
Dividend Yield
2.06%
Market Cap
$65.88 billion
Rev. per Employee
$209,322
loading...
/zigman2/quotes/206554267/composite
US : U.S.: NYSE
$ 14.08
+0.41 +3.00%
Volume: 6.30M
Aug. 7, 2020 4:02p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$5.26 billion
Rev. per Employee
$122,815
loading...
/zigman2/quotes/203902116/composite
US : U.S.: NYSE
$ 16.00
+0.72 +4.71%
Volume: 8.75M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$2.51 billion
Rev. per Employee
$214,324
loading...
/zigman2/quotes/202062875/composite
US : U.S.: NYSE
$ 26.04
+0.78 +3.09%
Volume: 3.43M
Aug. 7, 2020 4:02p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$7.23 billion
Rev. per Employee
$148,898
loading...
/zigman2/quotes/203136811/composite
US : U.S.: NYSE
$ 55.45
+2.04 +3.82%
Volume: 7.41M
Aug. 7, 2020 4:03p
P/E Ratio
40.75
Dividend Yield
0.00%
Market Cap
$66.42 billion
Rev. per Employee
$156,518
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Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies. You can follow her on Twitter @tgarcianyc. She is based in New York.

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