The coronavirus has now surpassed the levels of the 2003 SARS crisis and is accelerating around the globe. The deadly disease has also hit the stock market, with numerous U.S. companies in a vulnerable position. Wall Street analysts recently issued warnings to restaurants, retailers, and hotels in regards to their high revenue exposure in the Chinese market as some businesses were forced to close shop.
Well-known brands including Nike (NYSE: NKE) and Estee Lauder (NYSE: EL) generate 17% of their revenue from China every year. Investment bank, Credit Suisse estimates that both companies will see a 3% to 5% drop in earnings per share in the next quarter if the coronavirus continues to spread.
Nike has shut about half of the stores it owns in China so far and the athletic-apparel company expects the situation to have a material impact on its operations in Greater China. However, Nike’s brand and business momentum in the Chinese market remains strong, particularly its e-commerce segment.
Due to the fear of contracting the deadly coronavirus, China has restricted travel for around 35 million people across 15 cities, suspended tour groups, and closed huge tourist hotspots. This creates an extremely challenging environment for a number of hotels in the U.S with their usual exposure from the Chinese market put to a halt.
Companies like Marriott (NASDAQ: MAR), Hilton (NYSE: PK) and Hyatt (NYSE: H) are also affected. In 2019, Marriot pocketed around $260 million from China or 7.5% of total fees, while Hyatt’s exposure is around 10% of total fees. In addition, the virus could cost Disney (NYSE: DIS) around $175 million after the company was forced to close popular theme parks during peak tourist season.
Restaurant chains including McDonald’s (NYSE: MCD) and Starbucks (NASDAQ: SBUX) have been forced to shut down because of the travel restrictions imposed on China. Starbucks has closed around 2,000 of its 4,300 stores in China, while McDonald’s has closed around 300 stores across five cities. This is something leading analysts have voiced their worry about the short time revenue picture given China’s large exposure in the market.
Guggenheim analyst Matthew DiFrisco said it’s estimated Starbucks has the biggest exposure, followed by McDonald’s and Domino’s (NYSE: DPZ).” He also added that around 10% of Starbucks sales and 15% of its operating income are generated in China. As for McDonald’s, there are around 3,300 stores across China that produce 10% year-over-year unit growth.
Big tech company Apple (NASDAQ: AAPL) has also taken a hit by the virus fears, with around 61% of its revenue generated from iPhones in the last quarter. This is a huge problem for the company as its big contract manufacturer Foxconn assembles the product in China and the country made up 15% of Apple’s sales last quarter. The tech company temporarily closed its stores and offices in mainland China as a precautionary measure.
This is likely to have an effect on the production of Apple’s 2020 iPhones after shipments of the popular phone dropped by up to 60% annually during the Chinese New Year Holiday. Another business affected greatly by the outbreak is Qualcomm (NASDAQ: QCOM) which generated 48% of its revenue from China last year. The chipmaker was already up against some major challenges in its top market, like slowing smartphone sales, competition, and an ongoing dispute with Huawei.
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This article was written by one of our MyWallSt freelancers.