What happened
Shares of lululemon athletica (LULU -1.38%) were down sharply on Thursday afternoon as concerns about the growing virus pandemic drove a broad-based market sell-off.
As of 1 p.m. EST, Lululemon's shares were down about 7.6% from Wednesday's closing price.
So what
Upscale yoga wear specialist Lululemon has a significant online business, but it's still a brick-and-mortar retailer with over 450 stores around the world. As with other retailers, investors in Lululemon are concerned that efforts to slow the spread of the COVID-19 virus via "social distancing" seem likely to put a heavy damper on retail foot traffic.
Image source: lululemon athletica.
There are already signs that consumers are staying home. In a note on Wednesday, Morgan Stanley analysts led by Kimberly Greenberger said U.S. retail traffic fell 9.1% last week, while luxury retail traffic fell 14.7%.
The team concluded that the declines were due to an increase in news coverage of the virus in the United States. Given that coverage has increased dramatically in the last few days, next week's numbers are likely to be considerably worse.
Now what
Lululemon has already been hit by the effects of the virus in China, where it operates 38 stores. As the virus spreads through Europe and North America, the impact on the company's sales is likely to be quite significant. We'll find out more when Lululemon reports its fourth-quarter and fiscal 2019 earnings on March 26.
