In another heavy earnings day in Retail, the Street, of course, looked right through what we consider to be a key overnight Macro event in China that has meaningful implications for Retail.
China has made additional changes to its VAT (Value Added Tax) structure and has increased rebates on semi-finished leather to boost leather production and subsequent exports of handbags, leather shoes and accessories. This comes on the heels of similar actions geared towards athletic/casual footwear and apparel. What people do not realize is that these incentives are spurring the re-opening of factories every day (that closed in ‘07/’08).
With Asian capacity growth returning to the equation, do not underestimate the impact on earnings to the US retail supply chain! Key direct beneficiaries include PSS and UA. In this instance, Coach and to a lesser extent some other luxury goods brands should also benefit.
Indirect beneficiaries are those with the leverage in the supply chain to keep a disproportionate amount of the margin injection. Even though some companies have been talking about this for 3-4 weeks, it is not yet represented in estimates for some key names. People will be wishing they got these numbers right in another six months. Trust me...