China’s Winning The Battles: We Can Win The War

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Posted: Mar 15, 2018 10:13 AM
China’s Winning The Battles: We Can Win The War

As elites from Washington to Wall Street cower at the thought of a so-called Trade War with China, that nation continues to gear up to win that same Trade War. 

Xi Jinping has effectively crowned himself emperor, and part of his power consolidation includes merging agencies and ministries into powerful units to make swift decisions, including its ability to print money via an omnipotent central bank.

While the obvious theft of US intellect and trade secrets is no secret itself, what needs to be discussed even more is the fact China isn’t that backwater nation featured in Sally Struthers commercials a couple decades ago.  China has become an economic juggernaut, which plans to usurp America as the preeminent economy on the planet.

Competition is fine.  So, let’s make sure it’s fair as well.

Yesterday, we learned China’s economy grew at 6.9% in 2017, the first year to year increase since 2010.  In addition, China’s industrial production for the first two months of the year rocketed to 7.2%, well above consensus of 5.9%.

Click here to view the chart.

The proxy for China’s economic might is Boeing (BA), which saw its shares rally from $159 on inauguration day to a recent high of $365 a share.   Part of the company’s success is its vast sales in Asia, which is becoming the world’s top market for airplane sales.

Back in 1996, 14 of the world’s top 20 airports were in North America.  Today, that number is down to just four.   Yet, new airport growth continues in Asia, paced by China, and cities we’ve never heard of with millions of folks.

Click here to view the image.

Click here to view the second image.

Make no mistake. China is already in a trade battle, and it expects to win the war.

Today’s Session

Forget the retail sales report that missed consensus, or news that Toys R Us is closing all its retail locations, people are spending money.  Two retail financial reports, and guidance, prove this contention. 

High End Retail

William Sonoma (WSM), which sells things like fancy $2,000 steam ironing units, posted its financial results after the bell last night with impressive results.

Comp brand revenue was +5.4%, led by a surge of +12.3% at its West Elm stores.

E-commerce was +8.4%, reaching 52.2% of total sales (that’s an Omni-channel success).

Guidance:

  • Revenue $5.63 billion vs the street $5.48 billion
  • Earnings $4.22 vs the street $4.05

Low End Retail

Dollar General (DG), which offers great value on things like Betty Crocker Brownie Mix, posted financial results this morning that were mostly in-line with consensus, but the details and guidance were nothing short of amazing.

The company began 2017 with 13,320 stores and finished with 14,434, increasing its square foot presence by 9.0% from 7.0% in the prior year.

  • Consumables led +2.8%
  • Seasonal +2.4%

Guidance:

  • Earnings per share $6.15 vs the street consensus $4.51

I should note both companies saw some margin pressure from higher SG&A costs, as there is serious competition for those increasing dollars coming from increasingly confident consumers.