- History shows that viral outbreaks can have a significant, if short-lived, effect on sales, Credit Suisse's Michael Binetti said in a note Monday.
- Today's retailers have e-commerce to thank for buffering the depressed demand they will see in their brick-and-mortar storefronts.
- Thirteen US retail firms are particularly exposed to the fallout. We list them from least to most.
- Visit Business Insider's homepage for more stories.
Retailers with big businesses in China could see their sales numbers drop this Lunar New Year as the country combats the spread of coronavirus.
For the most exposed companies, the cost could amount to a 3-5% reduction in earnings per share next quarter if coronavirus continues, Credit Suisse analyst Michael Binetti said in a Monday research note. On top of that, there's a risk that media coverage itself could eat into share performance, he said, adding that price-earnings ratios, a measure of how expensive a company's share price is relative to value, could fall by 10-15%.
The hit to revenue comes during a week that typically would be a boon for retailers: the Lunar New Year. Instead, this year, coronavirus has left at least 12 cities in China under lockdown, restricting the movement of at least 40 million people.
Binetti based his analysis of the risk of coronavirus off of historical data from SARS and avian flu outbreaks in 2003 and 2004-2006, respectively.
To be sure, today's retail companies have certain tools in their back pocket that weren't available in previous outbreaks nearly two decades ago, Binetti said: e-commerce makes up a bigger share of business and should be more durable, and China and the Centers for Disease Control and Prevention are more equipped to combat the spread of contagious disease, he said. Plus, retailers have bounced back from contractions quickly in the past, he added.
Still, previous viral outbreaks in China hampered retail, Binetti said: "At the height of reported SARS cases, Mainland China retail sales growth slowed to just +4%," about half the rate seen in the preceding 12 months. The "fear factor" produced by media coverage led to a 16% contraction to price-earnings ratios on top of that, he added.
Binetti pointed to a basket of US companies that get a significant share of their revenue from Chinese sales. Here are the thirteen companies exposed, from least to most: