Tuesday, December 22, 2015

Questions America Is Asking: Who Will Be The Luxury Retail Winners This Christmas?

It will be a tough business without the Chinese.

From AlphaNow:
Jewelry, watches, high-end leather bags – the luxury retail market kicks into high gear for the holiday season. Lately, the most enthusiastic buyers of luxury goods have been in China, but the Thomson Reuters consensus shows that China’s economy might start to lose steam in 2016. What does this mean for luxury retailers?
The latest reading on the Thomson Reuter Ipsos consumer sentiment report suggests that the outlook looks dim in both China and the U.S. In addition, the U.S Federal Reserve finally raised interest rates, which will mean an even stronger dollar abroad.

Our estimates suggest that the holiday season won’t be as stellar as in the past for most of these luxury names. For instance, Prada reported weaker than expected earnings due to weakness in China. Yet this sector tends to be more resilient than others. Let’s look at four big players that are best poised to withstand global weakness.

Growth outlook
Turning to estimated growth rates, the names in the chart below are expected to see revenue growth for the current period vs. a year ago. Four out of 16 are expected to see double digit growth on both revenue and net income: Compagnie Financiere Richemont SA (CFR.VX), Kate Spade & Co. (KATE.N), LVMH Moet Hennessy Louis Vuitton SE (LVMH.PA) and Hermes International SCA (HRMS.PA).

LVMH and Hermes are reputable brands known for superior leather goods. Compagnie Financière Richemont’s jewelry and watch brands include Cartier, Van Cleef & Arpels and Piaget. These companies enjoy a solid affluent consumer base and as a result are considered less vulnerable to global economic weakness. Because of their brand strength, they are also seen as having more pricing power and are capable of performing more efficiently than other luxury names....MORE