Castro moves production out of China

Castro Photo: Eyal Yizhar

The coronavirus outbreak is preventing the Israeli retail chain's suppliers from resuming manufacturing operations after the end of the Chinese holiday season.

In its first announcement about its exposure to the coronavirus crisis in China, Israeli fashion retail group Castro Model Ltd. (TASE: CAST) announced today that it fears disruption to its supply chain and is shifting production to alternative suppliers. Castro said that the Chinese authorities had extended the local holiday season in China, which was scheduled to end yesterday, by a week. The company has also been told by a number of Chinese suppliers "who manufacture some of the group's products" that at the current time, "they are not resuming regular activity" due to "the lack of clarity in China about the spread of the coronavirus and the measures taken to reduce the exposure to it."

"Although the company does not expect its operations to be immediately affected, a prolonged shutdown of manufacturing activity in China or a failure to resume regular work and full production is liable to affect the company's activity in the medium and long term," Castro says.

The company adds, "Since there is no way of knowing when regular production activity in China will be resumed, the company is unable at the present time to assess the effect of continued disruption or a halt in manufacturing activity in China on its result, although if these disruptions persist, the company anticipates that the negative effect on its results will increase.

"The company is working with its suppliers in other territories in order to try to move manufacturing activity to these territories to the greatest possible extent… (the company) will continue to monitor the reports from China, and will provide more information whenever necessary."

Castro, which has a NIS 320 million market cap, has been reporting weak results for a long time. The company's share price responded moderately to today's announcement, dipping 2% on a very small turnover. Castrol is coping with this situation at a time of poor results, the failure of its attempt to enter the US market, and the cancelation of Carolina Lemke's advertising agreement with Kim Kardashian.

Castro's net loss in the first nine months of 2019 totaled NIS 68 million. Its share price has plummeted 45% over the past year.

Published by Globes, Israel business news - en.globes.co.il - on February 10, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Castro Photo: Eyal Yizhar
Castro Photo: Eyal Yizhar
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