US fashion brands will open more stores abroad this year and next, encouraged by a wave of foreign shoppers that has buoyed profits at home.
With reinforced brand recognition, they may be in a better position than some rivals even if a stronger US dollar, weakening European economy and rising air fares stem the flow of tourists to their home turf, investors and executives said.
"If they don't come (to the US), maybe they'll shop in the stores over in Europe," says Daniel Coleman, chief investment officer of Edge Asset Management in Seattle, a unit of Principal Global Investors.
US brands with stores abroad, such as Tiffany & Co, Coach Inc, Polo Ralph Lauren Corp, Guess Inc and Urban Outfitters Inc, already tend to outperform competitors with only US stores.
"What I like about Tiffany is that they're all over the world," says Coleman, who has owned Tiffany shares in the Principal Mid-Cap Stock Fund he manages for about three years.
As of January 31, 2007, Tiffany was operating 70 US stores and 114 internationally. It is planning to open 24 stores this year across the US, Asia-Pacific region and Europe.
Urban Outfitters, which has 14 stores in England, Ireland, Scotland, Denmark, Sweden and Belgium, sees Europe as a "tremendous source of expansion", according to its CFO John Kyees.
"For us, Europe is just a wonderful market that we think we can have 50, or probably 100 stores in between Urban (Outfitters) and Anthropologie," Kyees says, referring to the namesake teen apparel chain and its upscale sister chain.
"But not necessarily as a replacement to the US market, or substitution, because the US market is still very good to us," he says.
Kyees says Urban Outfitters is opening five stores in Europe this year and plans to open about 50 to 55 stores next year in North America and Europe across all its concepts, which also include Free People and Terrain.
"These brands have global appeal," says Needham and Co retail analyst Christine Chen about US labels like Polo, Coach, and Calvin Klein. "The ironic thing is that Europe may hate our politics but they love our brands."
US shopping spree
Polo, Guess and Warnaco Group Inc - which makes Calvin Klein jeans and underwear - all reported quarterly profit well ahead of Wall Street expectations. They cited strength at international stores and raised their full-year profit forecasts.
Polo shares are up 19 percent this year while Warnaco's are up 43 percent and Urban Outfitters are up 29 percent. Guess shares are down 4 percent and Coach's are down 6 percent.
By comparison, shares of JC Penney Co Inc and Macy's Inc, which have nearly no exposure overseas, are down 14 percent and 22 percent, respectively. Shares in American Eagle Outfitters Inc, whose international presence is limited to Puerto Rico and Canada, are down 33 percent.
For many hot US names, domestic stores popular with tourists have been a particular bright spot, as a historically weak US dollar this summer spurred millions of international visitors to stock up on sale-priced Coach bags, Tiffany jewels, Abercrombie & Fitch jeans and Polo shirts.
Consumer spending, which makes up two-thirds of US economic activity, has declined due to a credit crisis, crumbling housing market, soaring prices and job uncertainty.
Many retailers have also signaled their worries about weak spending in the second half of the year, particularly during the key holiday shopping season.
"A lot of American companies are growing their footprint internationally," says Standard & Poor's retail analyst Marie Driscoll. "The fact that they're diversified globally mitigates some of the weakness in the US."
The interest overseas doesn't extend solely to Europe.
American Apparel, which as of July 31 had 200 stores in 16 countries including Mexico, France, Australia, Israel and Japan, said it plans to open 50 to 55 stores this year. Locations in the pipeline include three stores in China, two in Sweden and four in Canada.
Abercrombie & Fitch, which operates more than 1,000 US stores under the names Abercrombie & Fitch, Hollister, abercrombie, Ruehl and Gilly Hicks, has six stores in Canada and one in London. It is currently pursuing locations in Milan, Copenhagen and Tokyo.
"Abercrombie is in the midst of a transition from a company geared domestically in terms of sales to a truly international company," wrote analyst Jennifer Black of Jennifer Black & Associates in a recent research note. She said that would boost margins as well as sales, since overseas pricing is higher.
These retailers may be ahead of the curve, says Coleman from Edge Asset Management, but he guessed that other big names, such as Macy's, will eventually catch up.
"There's a huge market outside the US and if you're a retailer with a good brand, why wouldn't you want to explore that?" he says. "I think over time retailers here are going to figure it out and do it."
