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Why Ralph Lauren Shares Dropped Today

By Jeremy Bowman – Feb 24, 2020 at 2:34PM

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Shares of the higher-end clothing maker headed lower on fears of an expanded corona virus outbreak.

What happened

Shares of Ralph Lauren (RL -0.52%) were slipping as coronavirus fears spooked investors in the luxury brand and in the broader market. As of 1:41 p.m. EST, the stock was down 6.4%.

So what

Stocks were down widely today as panic over coronavirus swept the market. Infection cases in countries like Italy, South Korea, Israel, and Iran soared over the weekend, making it clear that the disease, officially called COVID-19, has become a global epidemic, not just one restricted to China.

A Ralph Lauren store in Rome.

Image source: Ralph Lauren.

Ralph Lauren said in its third-quarter earnings report that it had shuttered about half of its 110 stores in China because of the virus. Investors were already nervous about the disease's impact on luxury brands like Ralph Lauren, as the Chinese make about a third of purchases in the global luxury market. Travel and tourism, which are similarly being impacted by the coronavirus, are also correlated with luxury spending, and less tourism likely means lower revenue for Ralph Lauren.

The company then said on Feb. 13 that it expected revenue for its current quarter to be negatively impacted by $55 million to $70 million and for operating income in Asia to be down $35 million to $45 million due to the virus's impact in China, South Korea, and Japan. At the time, management also said the percentage of its China stores that were closed had risen to two-thirds.

Notably, the stock didn't fall on that news, but investors seem to be taking that warning into account today.

Now what

Ralph Lauren's guidance will essentially wipe out all of the operating income it had in Asia in the fourth quarter a year ago. Analysts now expect earnings per share of just $0.64 for the quarter, down from $1.07 a year ago.

About half of Ralph Lauren's sales come from outside North America, so the company could be hit again if coronavirus fears cause store closures in Europe and elsewhere in Asia. Don't be surprised if the disease takes a bigger toll this quarter than the company projected in its announcement earlier this month.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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