Communicating the Coronavirus Impact: Key Considerations for the Consumer Sector

By Stacy Turnof and Ted McHugh

With the coronavirus becoming a widespread outbreak, consumer companies must evaluate and communicate the broad-reaching implications of the crisis, especially as earnings season approaches. While the healthcare implications have been front and center to date, behind the scenes, there is also potential for massive disruption to consumer and retail companies that sell products across Asia, or those with substantial supply chain relationships in the region. From closing critical manufacturing facilities and retail stores to the travel ban, the market has slowly begun to understand the gravity of the situation and is eager for additional information. Furthermore, the timing of the Lunar New Year, which is the busiest travel season of the year in Asia, has exacerbated the financial impact as many have canceled their travel plans. In addition, the Chinese government extended the New Year holiday, resulting in workers returning to their jobs later than expected and further delaying the production of goods.

Bottom line, while there are many unknowns, consumer companies must act decisively to share their perspective of the crisis with the investment community, provide visibility into projected operational and financial results, and share measures being taken to mitigate as much risk as possible.

Below are steps companies in the consumer space should consider ahead of earnings season.

Step 1: Understand and communicate your exposure

It is critical to help the investor community evaluate exposure to the affected region, from both a customer base and supply chain standpoint. Investors will primarily care about China, but clarity on vulnerability in adjacent countries will also be helpful. While this may require additional disclosure, providing some level of detail around the materiality of exposure will be required to help manage market uncertainty. Several companies have already moved quickly to provide an update, including McDonald’s, VF Corp., and Moncler.

Consider sharing information related to the percentage of total sales in China; total store count in the region, including stores that have been closed or have reduced hours; as well as emerging trends in both sales and traffic throughout the crisis. There may be a need to provide commentary on the effects of tourism on sales growth, as travel bans have not only pressured business in China but also overseas. It will be equally important to discuss sourcing exposure and supply chain operations in China, including commentary on factory closures, labor supply challenges, and how these issues have influenced the cost of goods.

While commentary provided by each company will vary depending on what is most relevant to their business, incremental disclosure will enable the analyst community to model the financial implications. This will also help sustain credibility during a difficult period and properly set future earnings expectations. 

Step 2: Don’t necessarily wait until earnings to provide an update

Issue Standalone Press Release

If the business impact from the coronavirus is material, consider publishing a standalone press release. A press release is an opportunity to control the narrative and share important proof points. Although it may be premature to quantify the earnings impact of the crisis, this type of color and data will help prepare the investor community for earnings. Nike and VF Corporation published press releases on the potential ramifications of the virus, including details around store closures and reduction in hours, sourcing exposure, and expectations regarding the timing of additional guidance. Each company also discussed the risk mitigation strategies that they are implementing, including the prioritization of the health and safety of employees and company partners. 

Share Employee Communications Externally

Investors recognize the importance of employee engagement during a crisis. One creative way to keep investors informed of internal communications is to make certain content available publicly. In the case of Walmart, International CEO, Judith McKenna, shared her employee letter to all global home office associates on Walmart’s corporate website. The letter addressed how the company is responding to coronavirus, including its plans to provide additional healthcare services, implementing travel limitations, and updating supply chain and store operations. The company also announced its plan to donate funds for medical supplies in the affected regions. Walmart’s decision to share an employee letter externally was differentiated and emphasized how serious the company was taking the issue.

Step 3: Prepare earnings day messaging 

Discuss the Coronavirus in Prepared Remarks, Don’t Wait for Q&A

Be upfront about the business impact of the coronavirus in prepared remarks and don’t wait until Q&A to address it. This will help better control the message as questions will already be top of mind for the investment community. An Edelman conducted analysis of a select group of consumer companies that have already reported earnings found that roughly 75% included coronavirus commentary in the prepared remarks, with the majority of those comments being made by the CEO.

Does Guidance Include Coronavirus Implications?

With the start of earnings season for the consumer sector, companies including Capri Holdings and Tapestry have addressed the impact of coronavirus on guidance to varying degrees. Some have quantified the hit to expected financial results, including sales and earnings, while others have indicated it is too early to provide guidance and will do so when they have better visibility. 

At a minimum, we recommend informing the Street if the ramifications of coronavirus are assumed in guidance and being transparent about plans to continue to assess the situation and provide timely updates going forward.

Focus on the “S” in ESG

Investors not only want to understand the financial implications from the coronavirus but also what companies are doing from a social purpose perspective. A key finding of Edelman’s 2019 Institutional Investor Trust Barometer is that investors are investing more in ESG-focused companies and 61% have increased their investment allocation in companies that prioritize ESG factors. 

In the case of the coronavirus, several companies have discussed company wide initiatives to help fight the epidemic. For example, Canada Goose noted that they are donating to groups working to contain the outbreak, while Levi’s called out strategies that emphasize the health and safety of their employees and business partners during this crisis. While the priority of these initiatives is meant to focus on company employees and the communities they serve, there is also an opportunity to send an important message to shareholders that the company is ready to lead and make a positive contribution to the situation.

Reiterate your Confidence in Long-Term Strategy and Value of Brand

Despite the disruption from the coronavirus, it is important to reiterate the global strength of the company’s brand and an ongoing commitment to the Chinese market and its consumers. For example, Estee Lauder discussed its commitment to increase its R&D investment in the region to drive prestige beauty innovation.

In closing, the coronavirus is a serious issue facing many companies around the globe. While recognizing that there is much uncertainty related to the financial impact of this crisis, a proactive communications approach will help maintain credibility with the investment community control the message as the situation unfolds.

Stacy Turnof is a Senior Vice President in Edelman’s Financial Communications & Capital Markets practice.

Ted McHugh is an Executive Vice President in Edelman’s Financial Communications & Capital Markets practice.