Aspirational luxury retailer Coach (NYSE:COH) may get a solid lift in sales as Chinese New Year, or Lunar New Year, nears. China is the largest market for Coach outside U.S., and with the Chinese luxury spending expected to increase significantly in the week leading to January 23rd,   Coach may well witness its first 2012 bonanza. Coach is the leading American marketer of luxury lifestyle handbags and other fashion accessories and competes with premium apparel and accessories players like Ralph Lauren (NYSE:RL), Liz Claiborne (NYSE:LIZ) and Ann (NYSE:ANN).
We have a price estimate of $68.20 for Coach stock, which is roughly 7% ahead the current market price.
Chinese luxury spending is booming
Contrary to the weak macro-economic conditions in the U.S. and Europe, the Chinese economy is still growing at a brisk pace. Amid the fear that Chinese economy may hard land in order to curb surging inflation, Chinese GDP growth rate stood at 8.9%, well above the market expectations.
The trend is also being felt in the luxury spending too. While initially it was being predicted that luxury retailers operating in China may be in for tough days, last quarter’s results for luxury retailers such as Coach and Ralph Lauren were well above market expectations, gaining primarily from the increase in their Chinese business.
Among all international markets, China remains the single most important market for Coach’s future growth. Just to highlight the increasing importance of Coach’s Chinese business, the company had listed itself on Hong Kong stock exchange on December 1st.  Additionally, the company had also announced the opening of 30 new stores in China for fiscal year 2012.
Chinese New Year is the longest and most important festivity in the Chinese calendar. Additionally, the custom of gift giving on the New Year’s eve is much more profound in China as compared to U.S. or Europe, which should also reflect as increase in sales during this quarter. We believe with the increasing Coach’s brand identity in China and the surging luxury spending around Chinese New Year, Coach can be one of the major Chinese holiday sales gainer this year.Notes: