Shares of Under Armour (UA 2.74%) (UAA 2.48%) and Skechers (SKX 4.14%) declined roughly 11% on Monday, while Nike (NKE 2.70%) recorded a 5% loss amid the worst day of trading for stocks since 2008. The Dow, Nasdaq, and S&P 500 all declined more than 7%.
The day couldn't have started off much worse for investors. The markets grappled with an oil price war between Russia and OPEC as COVID-19 coronavirus fears continued to add uncertainty for consumers and companies across the globe. The Italian government has instituted a nationwide lockdown as it became one of the worst-hit regions for the outbreak. Major U.S. markets have moved from a 10% pullback, generally referred to as a correction, to flirting with bear market territory, which is considered a 20% decline from recent all-time highs.
That broader selling pressure and increasing uncertainty is causing investors near-term pain in the markets, but there are specific concerns for companies such as Skechers, Under Armour, and Nike, as potential supply chain disruptions and slowing store traffic will almost assuredly hurt sales. Skechers already added this to the top of its recent 10-K risk factors: "We have significant sales and operations in China that are expected to be adversely impacted by the recent coronavirus outbreak and face risks that could impact our business, including our results of operations."
Under Armour depends on China for manufacturing and as a critical market for growth, and the outbreak is causing disruptions to both shipments and sales. Management believes the COVID-19 outbreak will negatively affect its business to the tune of $50 million to $60 million. Nike noted that the outbreak would certainly affect its near-term results and that roughly half of NIKE-owned stores have been temporarily closed in Greater China.
While all of the mentioned global apparel retailers will feel the effects from COVID-19, it comes at a particularly bad time for Under Armour investors. Like Nike, Under Armour has had to close a long list of stores across China, and Under Armour has already struggled to keep up with competition in North America and abroad without having to deal with COVID-19 implications. There was already little doubt that Under Armour faced headwinds and challenges as it announced bleak guidance for 2020, but the coronavirus outbreak seems to cement the fact that any turnaround will be in the medium to long term.
On the flip side, Skechers is coming off a strong 2019 that recorded four quarters of record sales and a 12.4% increase in full-year revenue. It should be able to absorb the effects of the outbreak without losing momentum for its long-term business. Nike will likely be in a similar position to Skechers and will give investors more details during its fiscal third-quarter earnings call on March 24.
Ultimately, investors gain nothing from panicking and selling when markets decline so suddenly. This is a fantastic reminder for everyone to dust off their investing thesis for all the stocks in their portfolio and figure out if the long-term potential has changed. Chances are, if you were bullish on the stocks before the world learned of COVID-19, you're likely still bullish about the same stocks over the next ten or more years. Uncertainty and volatility in the markets isn't ideal, and watching stocks plunge is nerve-racking, but evaluate your positions calmly as they're likely to balance out in the long run.