Li & Fung Ltd., the biggest supplier for retailers including Wal-Mart Stores Inc. and Inditex SA’s Zara, approached its record in Hong Kong trading on rising consumer spending in the U.S., its largest market.
Li & Fung, the second-best performer on the Hang Seng Index this year, rose 3 percent to HK$38.40 at the end of Hong Kong trading today, 85 Hong Kong cents below its record closing price of HK$39.25 on Nov. 1, 2007. The stock has gained 51 percent since company said in August that it had a $1 billion war chest to use on buying smaller rivals.
Spending by U.S. consumers increased in January by a more than anticipated 0.5 percent, following a 0.3 percent gain in December, according to Commerce Department figures released yesterday. Retailers including Li & Fung client Macy’s Inc. are forecasting rising sales this year even as they don’t foresee a robust economic recovery.
“Li & Fung has historically been a very dangerous stock to short because it can announce an M&A deal at any time,” Matthew Marsden, a Hong Kong-based analyst at Samsung Securities, said in a phone interview today. “The market is expecting more acquisitions this year as Li & Fung still has a $500 million war chest.”
The company on Feb. 26 said it agreed to buy U.K. clothes maker Visage Group Ltd. for as much as 173 million pounds ($258 million), its fourth purchase in the past year. Li & Fung, which has a $20 billion sales target for 2010, in January signed a deal with Wal-Mart that may generate an additional $2 billion of sales in the first year.
Company President Bruce Rockowitz told analysts he may spend another $500 million on acquisitions, Marsden said earlier. Li & Fung had HK$3.16 billion ($407 million) cash in June. It’s scheduled to report 2009 earnings later this month.
Li & Fung will be focusing on expanding its health and beauty business, Rockowitz said in a Feb. 26 phone interview. The company, whose biggest shareholders are billionaire brothers Victor and William Fung, was founded in southern China in 1906 near the end of the Qing dynasty.
The company’s profit grew 13 percent to HK$1.4 billion in the six months ended June, largely on cost cutting as revenue fell. It made 61 percent of its HK$46.3 billion first-half sales in the U.S.
The median estimate of 61 economists surveyed called for a 0.4 percent increase in U.S. consumer spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent.
Wages and salaries in the U.S. climbed 0.4 percent in January after increasing 0.1 percent in the prior month.
--Editors: Frank Longid, Neil Denslow
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