An interesting note was that the flat global sales were largely in the U.S., Europe, and Japan, but the lone bright spot was the company’s surging sales in Greater China.
The Asia-Pacific area saw strong sales growth of 13% year-over-year to $187 million, versus growth of three percent in the U.S. and a lackluster two percent in the financially strapped European region; sales saw a five percent decline in Japan. (“Tiffany Reports Sales Results for Holiday Period,” Yahoo! Finance via BusinessWire, January 10, 2013.) Japan, in my view, remains negative. (Read “Japanese Economy Remains in a Comatose State.”)
The muted growth for high-end watches and jewelry doesn’t surprise me, given the recession in the eurozone and continued nervousness toward the U.S. economy.
Strong growth in the Asia-Pacific region, namely China, was also not surprising. I have discussed the Chinese retail sector in the past, and demand for goods—especially high-end goods—is surging, given the abundance of newfound riches and materialism.
In my view, China will continue to be a key region for high-end retailers, as I quickly realized during my recent visit to Hong Kong and China, where brand awareness was significant.
Consumers in China love their high-end brands. Luxury handbag retailer Coach, Inc. (NYSE/COH) is popular in China. While Coach is facing some slowing in spending, the Chinese consumer market continues to be a key and growing foothold for the company. In the fiscal first quarter, sales in North America increased eight percent to $784 million, but sales in China grew a sizzling 40% year-over-year. The growing importance of China is critical, with 104 Coach stores in China accounting for about 20% of all stores in the company’s network. (Source: “Strong overseas, US sales lift Coach 1Q profit,” Bloomberg Businessweek, October 23, 2012, last accessed January 11, 2013.)
While Coach and Tiffany face some growth issues in the retail sector, a retailer that is bucking the trend is high-end clothing retailer Michael Kors Holdings Limited (NYSE/KORS), which is estimated by Thomson Financial to report sales growth of 54.3% in fiscal 2013 and 31.1% in fiscal 2014. Michael Kors has beaten Thomson Financial earnings-per-share (EPS) estimates in each of the past four quarters. The key with Michael Kors is consistency. While the company only has about eight stores in Greater China, I feel a potentially major push in this region could really elevate the company in much the same way as Coach.
Michael Kors debuted on December 15, 2011 and has since doubled in price. Based on the operating results, Michael Kors could be a special stock in the retail sector going forward, especially if it can pick up in the burgeoning Chinese market.
Chart courtesy of www.StockCharts.com
The luxury retail sector is a niche that has a growing target market, with the growing middle-class in the BRIC countries (Brazil, Russia, India, and China). These stocks tend to have strong global brand awareness and are sought after by the new money and the old money.