Hong Kong released its November retail sale figures on December 30th. For investors of US-based consumer stocks that have global exposure, particularly in Asia, the Hong Kong retail statistics provide critical read-through on the consumer sentiment and purchasing trend. Companies that could potentially be impacted include Tiffany's (NYSE:TIF), Coach (COH), Michael Kors (NYSE:KORS), Ralph Lauren (NYSE:RL) and Gap (NYSE:GPS).
Overall retail sale was up +4.1%, a slight acceleration from the +1.4% increase we saw in October, and beat consensus of a -0.2% decline. Inbound tourism amid the dissipation of Occupied Central movement may have helped the overall consumer sentiment. Volume was the bigger driver, +7.5%, suggesting that discount is still needed to stimulate demand. In short I remain bullish on the US retailers that have exposure to Asia given the improving sentiment and spending trend. TIF remains my top pick within the jewelry sector, followed by GPS and KORS in the retail/softline space.
Tourism driving November. November retail sale handily beat consensus in terms of both value and volume. Total value of +4.1% growth and volume of +7.5% beat consensus of -0.2% in value and +2% in growth. The government cited stronger than expected in-bound tourism fueled much of the demand. While the official tourism statistics are not out yet, the trend from September and October certainly points to an acceleration of tourism into Hong Kong that saw +12% and +18% growth in inbound tourism for the respective two months. Most important, improving sentiment amid a gradual dissipation of the OC movement may have attracted tourists back to Hong Kong.
Jewelry showing signs of recovery. Jewelry continues its recovery path with the decline in sales narrowing to -2% for November compared with -11.5% in October. Volume saw the biggest recovery, up +1.4% compared with a -11% decline in the prior month. Clearly jewelry is making a sharp comeback and this is a huge positive for TIF that has significant exposure in the region.
Long TIF, GPS and KORS. While the OC movement has not completely dissipated, HK's November retail figures points to an encouraging trend. With consumer sentiment improvement, department stores will likely to see further rebound in foot traffic that will be supportive of the overall retail environment as we head into the Chinese New Year in February
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