Chinese conglomerate Chow Tai Fook plans to try to take the fast fashion concept to the jewelry market in China.
Luxury companies in the region, including Tiffany (TIF -0.5%) and private Cartier, see exploding profit growth in the mass market segment and also plan to sell more products aimed at the segment.
What to watch: China is expected to pass India to become the world's largest consumer of gold this year. Buyers in the region tend to be more trend-conscious which requires a nimble touch from sellers.
More retail analysts now see holiday season sales coming in weak after early projections from the NRF and ShopperTrak called for a 3% to 4% rise. A number of firms agree with Hedgeye that the level of promotional activity will be very damaging when Q4 reports start rolling in.
Despite the broad carnage in the retail sector, there are some out-performers.
Discounters: Dollar General's increase in traffic and average basket size - along with a decent quarter from Stein Mart - could be confirming indicators that consumers are stepping down a bit with their shopping habits. Watch FDO, DLTR, FIVE, FRED, ALCS, GMAN, SMRT.
Luxury: Tiffany (TIF +0.5%), Coach (COH -1.2%), and Ralph Lauren (RL -0.4%) are cruising through the retail season with demand and pricing intact.
Powerful brands: Early channel checks on Lululemon (LULU -0.4%), Nike (NKE +0.1%), and Gap (GPS -1.2%) have been positive as consumers gravitate to what they know and like.
E-commerce stars: Visa (V -0.4%), MasterCard (MA +0.4%), eBay (EBAY +0.2%), Amazon (AMZN -0.8%), Dick's Sporting Goods (DKS +0.3%), and Under Armour (UA +1.2%) are some of the companies tapped to benefit as mobile/online is factored in to counterbalance reads on weak store traffic.
Underdogs: J.C. Penney (JCP -7.6%) is a $20 stock, according to Hedgeye. The retailer has upside to improve its embarrassingly low sales-per-square-foot mark during the holiday season and continue online momentum.
Keybanc: "Gross margin opportunities both near and long term. Tiffany is our top pick this holiday season because it is one of the only names that we cover that has identifiable, high probability near-term gross margin expansion."
Deutsche Bank: "What was most intriguing about today’s call was management’s positive comments about early green shoots in the top-line trends of the higher-margin Fashion jewelry product category. This, along with the potential that product costs will remain deflationary/tame and that price increases will continue to positively impact, provide a potential basis for continued operating margin expansion. That said... current valuation of ~24x this year’s EPS and ~21x that of next year, keeps us at HOLD."
Credit Suisse: "Tiffany posted one of the strongest quarters for a company in our coverage universe year to date, with comps, margins, and EPS well ahead of expectations. Quality of the earnings upside was high, with favorable results in several key areas... We reiterate our Outperform rating and raise our target price to $94 from $89."
Citi: "TIF executed on high quality EPS given better sales (+7%) and gross margins (+255bps), and we are particularly impressed with pricing and slight unit growth in Americas given fashion product. Also, wealthy customers are spending likely given a combination of better product, S&P500 (YTD +26.7%), housing wealth effects, focused marketing and strength in higher priced Atlas gold product."
Stifel: "Normally we don’t like to focus too much on any quarter as an inflection point... But this TIF Q3 had a fair amount of inflection... TIF has many catalysts still working (comp momentum, gross margin improvement, new Design Director work coming, new members of senior management bringing some outside experiences/perspective)."
Wells Fargo: "TIF’s Q3 earnings beat was impressive, and the brand seems to be resonating in most regions. While the company has good momentum, and the gross margin tailwind should continue for a couple of quarters, we believe the stock price reflects this as it is trading well above its luxury peers despite its significantly lower ROIC. Considering the valuation, we do not believe this leaves much room for error in Q4--and with the choppy U.S. business, Q4 is not a sure thing."
Tiffany & Co through its subsidiary, operates as a jeweler and specialty retailer. It also sells timepieces, sterling silver goods, china, crystal, stationery, fragrances, personal accessories and leather goods.