If COVID-19, the coronavirus that has sickened more than 80,000 people, spreads across the U.S. as health officials are warning, consumer-facing companies would be the first to be hit as their customers isolate themselves and avoid public spaces, experts said Wednesday.
The list includes everyone from retailers to restaurant operators, luxury-goods companies and cinema chains, many of which are starting to offer the first clues as to how the disease is impacting business. For now, those clues are mostly focused on business conducted in China or supply-chain-related issues. Few have offered details on how bad things could get if the U.S. is subjected to similar restrictions on movement to those imposed in China to contain the spread of the disease.
With the December quarter’s corporate-earnings-reporting season all but over — and most companies saying they did not incorporate the virus into their expectations for the year — investors should brace for a round of profit warnings and changes to guidance in the coming weeks. That could revive the heavy selling in markets around the world that has shaken investors this week.
“Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus,” said Nigel Green, founder and chief executive of the deVere Group, a financial services and advisory company.
While some multinationals have lowered guidance, “many more are likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too,” said Green.
The U.S. retail sector will be hit by both demand and supply-chain issues, according to Cowen analysts, but that’s not all.
“Declining consumer confidence, potentially severe retail-traffic declines, and temporary store closures are evolving risk factors that depend on uncertain variables like the geographic spread of the virus and the timing of containment/eradication solutions,” they wrote in a note this week.
Companies are preparing for a big increase in the number of employees working from home, in the event that schools close or quarantines are enforced, depriving restaurants and other food-service providers of revenue. The global nature of supply chains means potential bottlenecks in the transportation of goods at a time when many retailers are keeping inventories tight.
Analysts at Wells Fargo said there could be empty store shelves as soon as mid-April, with retailers like Target Corp. /zigman2/quotes/207799045/composite TGT +1.22% and Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.93% at highest risk.
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“It’s worth noting that big-box players like Target and Walmart could be the first to experience out-of-stock issues, as they are more heavily dependent on a shorter-lead-time replenishment model,” Wells Fargo said. Analysts also named Best Buy Co. Inc. /zigman2/quotes/205918291/composite BBY +1.17% , Dick’s Sporting Goods Inc. /zigman2/quotes/200566298/composite DKS +3.43% and G-III Apparel Group Ltd. /zigman2/quotes/201364718/composite GIII +5.23% as companies at risk.