A slowdown in China is not going to be the end of the line for Michael Kors Holdings Ltd (NYSE:KORS). It is expanding everywhere and had 41% comparable-sales growth in the U.S. last quarter and 58% growth in Europe. The news isn’t great, but I’d be surprised if it translated into anything meaningful in three months. The brand is simply too strong right now to be damaged by minor macroeconomic headwinds.
Coach, Inc. (COH) and Fossil Inc (FOSL) are in slightly different places. Coach, Inc. (COH) is already heavily invested in China, operating 117 stores as of January with a plan for another 10 in the near future. The company gets about a third of its total revenue overseas, and growth in China has been a big driver of that. Last quarter, sales were up 40%, driven by a double-digit comparable-sales increase. But while Michael Kors Holdings Ltd (NYSE:KORS) has the benefit of being the hottest thing in town, Coach, Inc. (COH) is still working at gaining share.
Coach, Inc. (COH) is spreading itself out, expanding into men’s and non-bag accessories in all its markets. In China, it’s hoping that the expansion of its footprint and its new lines drive $400 million in revenue in the coming year. There’s a lot riding on that growth. Sales in the U.S. lagged a bit last quarter, and the only thing keeping everyone’s chins up was the strong international showing. A slowdown in China could mean that that buffer shrinks or disappears, which would put a lot of pressure on an uptick in the U.S.
Fossil Inc (FOSL) is in a similar boat, with North American and European sales doing well but not as well as sales in China. The company is also expanding its footprint, but is doing so in a way that it admits is fragmented. That’s caused the expansion to take longer than planned and hurt profitability. As a result, Fossil Inc (FOSL) really needs to show some strength in the Asian market. Luckily, it is going to be helped by the fact that it’s working with Michael Kors Holdings Ltd (NYSE:KORS) as the brand’s official watch provider.
The bottom line
Michael Kors Holdings Ltd (NYSE:KORS), Coach, Inc. (COH), and Fossil Inc (FOSL) all have money on the line in China and a slowdown is going to hurt. Having said that, the slowdown isn’t yet large enough to spell disaster and all of these brands have the strength to weather a small storm. If the trend continues, though, I’d start to be worried about long-term growth and for Fossil Inc (FOSL), about the time frame for real profitability. Overall, I think Kors is best placed, but its high P/E makes it a high-stakes bet.
The article China’s Retail Sales Growth Slows originally appeared on Fool.com.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Coach and Fossil.
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