Li & Fung’s Rockowitz Sees ‘Positive Buzz’ in U.S. (Update3)
By Susan Li and Wing-Gar Cheng
Sept. 10 (Bloomberg) -- Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc., sees a “more positive buzz†in the U.S. and has been
getting “pretty strong†re-orders from retailers, driving up its shares.
“We’re starting to see a little bit of a creep-up in spending,†President Bruce Rockowitz said in a Bloomberg Television interview today. “Definitely, the mid-tier retailers and the discount retailers are performing pretty well.â€
Li & Fung, founded in China near the end of the Qing Dynasty, 5 percent to HK$30.20 at the midday break in Hong Kong trading. Its market value has more than doubled in 2009 as it accelerates efforts to add customers, buys smaller rivals and signs outsourcing deals amid the global recession.
“The rate of decline that’s taking place is slowing, and it’s a question of have we bottomed and are we going up,†said John Rowsell, a managing director at Man Group Plc, which controls $43 billion of investments, including commodities and hedge funds. “Consumers are still somewhat dampened and I still am pretty hesitant about the U.S. economy.â€
U.S. unemployment rose to 9.7 percent in August, a quarter- century high, according to Labor Department data released last week. The job-openings rate fell to 1.8 percent in July from 1.9 percent the previous month, with 2.4 million positions available, the Bureau of Labor Statistics said yesterday. Consumer spending accounts for about 70 percent of the economy.
Best Performer
Li & Fung, the Hang Seng Index’s best performer in the past month, said Aug. 13 first-half profit rose 13 percent to HK$1.4 billion ($180 million), beating analyst estimates, on cost- cutting. The stock has more than doubled this year, beating the index’s 48 percent climb. It traded at HK$30.20 during the market’s midday break.
Hong Kong-based Li & Fung, also a supplier to Inditex SA’s Zara and Marks & Spencer Group Plc, seeks to spur sales through outsourcing deals and acquisitions, Rockowitz said.
“Some major retailers are looking to move to us, and have moved to us, their complete supply chain because they see that they can get better prices, quicker delivery,†he said.
The company is also seeking potential acquisitions in the U.S. and Europe and is “in a position to buy,†Rockowitz said, without identifying any targets.
“The pipeline is pretty full. We see a lot of great opportunity in the United States,†he said. “We’re seeing in the U.K., Germany, quite a few acquisitions that we’re working on today.â€
Talbots Deal
The company last month announced an outsourcing agreement with Talbots Inc., a U.S. women’s clothing chain with 586 stores nationwide. It expects to generate as much as $400 million in volume with the retailer this year.
In April, Li & Fung completed an $83 million agreement to buy the sourcing business of Liz Claiborne Inc., whose brands include Kate Spade and Juicy Couture. The deal may boost sales by $1 billion, according to the company.
Profit will be “stronger†in the second half, Rockowitz said Aug. 13. The company remains committed to its
target of $20 billion in sales by next year. Its U.S. onshore business may generate $1.5 billion revenue this year, and the European operations will break even this year and may have $1 billion of sales in 2010, Managing Director William Fung said Aug. 13.
Bentonville, Arkansas-based Walmart had second-quarter profit of $3.44 billion, or 88 cents a share, more than the 86 cent average of 22 estimates compiled by Bloomberg.
Li & Fung made 61 percent of its HK$46 billion first-half sales in the U.S., with its European operations contributing 30 percent.
Retail Bankruptcies
Li & Fung is seeking faster payments from Arcandor AG, which filed for insolvency in the first half. The company is still supplying the German retailer. Arcandor’s assets may be sold to other companies, which may continue to rely on the Hong Kong trader as a supplier. Li & Fung said on June 9 its writedown should Arcandor fail may be less than $68 million.
The company “definitely went through a number of problems†since 2008, with more than 20 retailers having gone bankrupt, Rockowitz said.
“I can’t say I don’t expect another bankruptcy -- it’s hard to tell -- but I would say a lot of weaker customers and retailers have gone bankrupt already,†Rockowitz said. “The weaker are getting weeded out right now.â€
To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at
[email protected]
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