Luxury Retailer Finding Upside in China

Coach delivered a China surprise in its quarterly earnings report on Tuesday, helped by what analysts see as its different positioning in the luxury retail space.

Luxury Retailer Finding Upside in China
Chiaki Tsukumo

"We think Coach … benefits [because] their business in China is still relatively young, so they're not seeing some of the same issues that some of the more mature companies are seeing," said Edward Yruma, an analyst at KeyBanc Capital Markets.

During the quarter, sales at Coach locations in China that had been open at least a year rose by a double-digit percent while comparable store sales in North American were up 5.5 percent.

Coach's earnings beat follows recent warnings from higher-end competitors Tiffany and Burberry about slowing growth in China.

Coach's sales in the country have benefited from what Liz Dunn, an analyst at Macquarie Capital Markets, described as the company's "accessible luxury price point."

Other high-end luxury names are continuing to see weakness stemming from their high-end consumers, Yruma said.

Last Friday, Yruma's firm, which has an $80 price target and buy rating on Coach shares, added the stock to its top picks list.

Coach's return to coupons at its outlet stores also helped boost sales, Yruma said.

"I think one of the big elements that clicked this quarter was adding coupons back to the outlet stores," he said. "There's clearly a consumer that wants the value, wants to get the deal, and we saw that consumer come back in full force during the quarter."

In addition to coupons, Dunn also highlighted Coach's strong performance in its full-price business, which was driven by strategy and the success of its men's business and Legacy collection (a line that emphasizes classic styles).

Dunn has an "outperform" rating and a $68 price target on the company's shares.

—Written by's Katie Little. Follow her on Twitter @katie_little_.

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Additional Views: Burberry Retail Sales Growth Slowed in Q2


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Disclosure info was not available for these analysts.