Could Weaker China Economy Derail U.S. Retailer’s Plans for - TopicsExpress



          

Could Weaker China Economy Derail U.S. Retailer’s Plans for Asia?NEW YORK (TheStreet) -- A slowdown in the Chinese economy could dent profits for U.S.amultinational retailers such as Starbucks , Abercrombie & Fitch a and Gap . These companies have been aggressively laying infrastructure in top Chinese markets such as Shanghai, Beijing, as well as second and third-tier cities, and have prospered while sales continue to be robust. But Chinese retail sales for August were the latest data point to call into question the sunny outlooks andahearty investment plans by these U.S.aretail companies. Retail sales growth in both urban and rural Chinese markets has been slowing since May. In August, urban retail sales rose by 11.8%, below Julys 12.1% pace, while rural retail sales expanded by 12.8% in August, down from a 13.2% increase in the prior month.a Read More:aMalls Arent Dead, Long Live the Mall: Simon Property CEOa At the end of its June-ended fiscal third quarter, Starbucks was approaching 1,300 stores in China, and recentlyaunveiled two new flagships locations, including one in Beijing that is open for 24 hours. Once again, comps in China outpaced the region overall, despite concerns around an economic slowdown in China, confidently noted Starbucks Chief Operating Officer Troy Alstead on the third-quarter earnings call in late July. Starbucks China and Asia Pacific segment, which includes 11 other Asian countries besides China, had a 35.04% operating margin in the third quarter, up an impressive 480 basis points year over year, according to Bloomberg. Starbucks China is not only winningaas a result ofastrong traffic in densely populated cities, but further from an estimated 10% to 20% price premium on its offerings relative to the U.S. The China segmentaspecifically is increasing its number of units the fastest from within theaChinaaAsia Pacific, or CAP,asegment (+39.53% in the third quarterayear-over-year), and represents about 9.64% of Starbucks total operating income and 6.7% of total revenue based on year to date financials. But shares of Starbucks havealosta1.8% in the past month as more worrying reads on the Chinese economy haveabeenareleased. Although U.S. mall stalwartsaGap andaAbercrombie & Fitch have comparatively smaller presences in China than Starbucks, their expansion plans are no less vital to their futures. Apparel retailers view China as a two-part opportunity -- open new stores that add to revenue amid enthusiastic Chinese crowds and peddle merchandise at higher profit margins thanain the U.S. Gap has 91 stores in China (87 Gap brand/4 Old Navy), constituting 2.8% of its global store base. The company plans to open 35 Gap stores in Chinaathis year (25 Gap brand/10 Gap outlet), along with 5 Old Navy stores. We look at the China market, as everybody knows, critical to the future growth for Gap, stated Gap Chairman and CEO Glenn Murphy on the retailers second-quarter earnings call. Gaps stock has gained roughly 6% in a months time, and moderating growth in China could serve as a surprise to investors when third-quarteraearnings are released in mid-November. Abercrombie & Fitch operates two namesake flagship stores in China, the newest one opening in Shanghai in April, and eight Hollister locations. A company spokesman told a Chinese online publication in April the company intends toaopen 100s of Abercrombie & Fitch and Hollister stores over the next decade. On the third-quarter earnings call in August, CEO Mike Jeffriesasaid, we remained very pleased with the volumes and profitability of our Hollister stores in both China and Japan, underscoring the confident tone expressed by Starbucks Alstead. Watch More: Buffalo Wild Wings CEO Tackles the Future with Innovation To get a feel for how U.S. multinationals are faring in China, andaifasurprising financials are looming,ainvestors could look to Nikes fiscal first-quarter earnings on Sept. 25,aparticularly asait pertains to unexpected inventory increases due to waning demand.aGreater China represented 9.3% of Nikes fiscal 2014 revenue, and 19.9% of its earnings before interest and taxes (EBIT). When Chinas economic growth cooled in 2013, Nike wasnt immune. On Nikes fiscal year-end earnings call in June 2013,aNike brand PresidentaTrevor Edwards remarked, For fiscal year 2013, we grew in every geography except Greater China, and across all of our key categories. He added that Nikes Q4 results reflect the benefits of higher selling prices and easing material costs, partially offset by the ongoing impact of labor cost inflation, higher discounts, particularly in China. That commentary was followed up byasimilar reservations in the first fiscal-quarter earnings call in September 2013 when Edwards said, In Greater China, currency neutral revenue declined 3% in Q1 as growth in sportswear and basketball was offset by declines in other categories. Read More:aWhy Best Buy May be Apples Biggest Fan Click to view a price quote on SBUX. Click to research the Leisure industry. By [email protected] (Brian Sozzi) NEW YORK (TheStreet) -- A slowdown in the Chinese economy could dent profits for U.S.amultinational retailers such as Starbucks , Abercrombie & Fitch a and Gap . These companies have been aggressively laying infrastructure in top Chinese markets such as Shanghai, Beijing, as well as second and third-tier cities, and have prospered while sales continue to be robust. But Chinese retail sales for August were the latest data point to call into question the sunny outlooks andahearty investment plans by these U.S.aretail companies. Retail sales growth in both urban and rural Chinese markets has been slowing since May. In August, urban retail sales rose by 11.8%, below Julys 12.1% pace, while rural retail sales expanded by 12.8% in August, down from a 13.2% increase in the prior month.a Read More:aMalls Arent Dead, Long Live the Mall: Simon Property CEOa At the end of its June-ended fiscal third quarter, Starbucks was approaching 1,300 stores in China, and recentlyaunveiled two new flagships locations, including one in Beijing that is open for 24 hours. Once again, comps in China outpaced the region overall, despite concerns around an economic slowdown in China, confidently noted Starbucks Chief Operating Officer Troy Alstead on the third-quarter earnings call in late July. Starbucks China and Asia Pacific segment, which includes 11 other Asian countries besides China, had a 35.04% operating margin in the third quarter, up an impressive 480 basis points year over year, according to Bloomberg. Starbucks China is not only winningaas a result ofastrong traffic in densely populated cities, but further from an estimated 10% to 20% price premium on its offerings relative to the U.S. The China segmentaspecifically is increasing its number of units the fastest from within theaChinaaAsia Pacific, or CAP,asegment (+39.53% in the third quarterayear-over-year), and represents about 9.64% of Starbucks total operating income and 6.7% of total revenue based on year to date financials. But shares of Starbucks havealosta1.8% in the past month as more worrying reads on the Chinese economy haveabeenareleased. Although U.S. mall stalwartsaGap andaAbercrombie & Fitch have comparatively smaller presences in China than Starbucks, their expansion plans are no less vital to their futures. Apparel retailers view China as a two-part opportunity -- open new stores that add to revenue amid enthusiastic Chinese crowds and peddle merchandise at higher profit margins thanain the U.S. Gap has 91 stores in China (87 Gap brand/4 Old Navy), constituting 2.8% of its global store base. The company plans to open 35 Gap stores in Chinaathis year (25 Gap brand/10 Gap outlet), along with 5 Old Navy stores. We look at the China market, as everybody knows, critical to the future growth for Gap, stated Gap Chairman and CEO Glenn Murphy on the retailers second-quarter earnings call. Gaps stock has gained roughly 6% in a months time, and moderating growth in China could serve as a surprise to investors when third-quarteraearnings are released in mid-November. Abercrombie & Fitch operates two namesake flagship stores in China, the newest one opening in Shanghai in April, and eight Hollister locations. A company spokesman told a Chinese online publication in April the company intends toaopen 100s of Abercrombie & Fitch and Hollister stores over the next decade. On the third-quarter earnings call in August, CEO Mike Jeffriesasaid, we remained very pleased with the volumes and profitability of our Hollister stores in both China and Japan, underscoring the confident tone expressed by Starbucks Alstead. Watch More: Buffalo Wild Wings CEO Tackles the Future with Innovation To get a feel for how U.S. multinationals are faring in China, andaifasurprising financials are looming,ainvestors could look to Nikes fiscal first-quarter earnings on Sept. 25,aparticularly asait pertains to unexpected inventory increases due to waning demand.aGreater China represented 9.3% of Nikes fiscal 2014 revenue, and 19.9% of its earnings before interest and taxes (EBIT). When Chinas economic growth cooled in 2013, Nike wasnt immune. On Nikes fiscal year-end earnings call in June 2013,aNike brand PresidentaTrevor Edwards remarked, For fiscal year 2013, we grew in every geography except Greater China, and across all of our key categories. He added that Nikes Q4 results reflect the benefits of higher selling prices and easing material costs, partially offset by the ongoing impact of labor cost inflation, higher discounts, particularly in China. That commentary was followed up byasimilar reservations in the first fiscal-quarter earnings call in September 2013 when Edwards said, In Greater China, currency neutral revenue declined 3% in Q1 as growth in sportswear and basketball was offset by declines in other categories. Read More:aWhy Best Buy May be Apples Biggest Fan Click to view a price quote on SBUX. Click to research the Leisure industry. Source:: The street latest ift.tt/1gB4pon
Posted on: Mon, 15 Sep 2014 17:54:16 +0000

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