Add luxury retailer Coach Inc. to the list of U.S. multinationals expected to benefit from China's rapid economic growth.
Last week, Coach reported better-than-expected second quarter results, with sales up 11% to over US$1-billion and net earnings up 12% from this time last year to US75¢ per diluted share.
While most of the attention fell on North American comparable store sales, which returned to growth by rising to 3.2% in the quarter, the double-digit revenue growth from China was also a highlight and may ultimately prove more important to the future bottom line for the company
"China continues to exceed expectations, causing management to accelerate the growth strategies for the region and revise the long-range plans significantly higher," said Murray Leith, analyst at Odlum Brown Ltd in Vancouver
He said unaided awareness of the Coach brand is approximately 8% in China, compared to 72% in the U.S. and 63% in Japan, offering great growth potential inside the borders of the world's most populace country.
Coach stock fell 9% last week depite the favourable results, but Mr. Leith said investors simply got ahead of the company's fundamentals, having bid up the shares earlier in the week.
Now that Coach is selling at less than 15x fiscal 2011 earnings, he considers it a good buying opportunity and maintained his Buy recommendation and $40 target price.