Market Pulse | Luxury stocks bounce back following Japan crisis

Savigny Luxury Index March 2011 | Source: Savigny Partners

Today,  BoF welcomes Pierre Mallevays as a contributing editor and launches Market Pulse, a monthly look at how the fashion news that everyone is talking about is impacting stock market movements.

Big news:

John Galliano dismissed from Dior days before the A/W 2011 fashion shows resulting in a PR crisis and leaving the brand without a creative director

• LVMH announces the surprise take-over of Bulgari, valuing the business at 3.7 billion euros

• Luxury goods stocks take a beating following the Japan earthquake with PPR being the worst hit. The sector bounced back very quickly as its dependence has lessened over the years. Japan represents only 9 percent of LVMH’s total revenue (compared to almost 25 percent in 1995)

Going up:

• Biggest winners are Tod’s and Ports with share prices increases well into double digits following strong results announcements

Going down:

• US luxury companies, namely Coach, Tiffany and Polo Ralph Lauren, traditionally more dependent on Japan, have been badly hit in the aftermath of the recent earthquake and lost between 2.8 and 9.5 percent versus the SLI which lost 1.6 percent during the month of March 2011

What to watch:

Watches and jewellery stocks, led by Richemont at almost 16 times EBIT (Earnings Before Interest and Tax), have been spurred by strong Swiss watch exports. One wonders if such valuations are sustainable given the challenges ahead for this segment: soaring gold prices, a punitively strong Swiss Franc and capacity constraints

Pierre Mallevays is a contributing editor at The Business of Fashion and founder and managing partner of Savigny Partners, a corporate advisory firm focusing on the retail and luxury goods industry