Market Pulse | No Sparkle Despite Shiny Results

Savigny Luxury Index April 2012 | Source: Savigny Partners

LONDON, United Kingdom — The Savigny Luxury Index (SLI) continued its sluggish performance this month, ending almost flat (SLI components actually fell an average of nearly 2 percent when expressed in local currency) compared to a drop of 0.7 percent in the benchmark MSCI World Index (MSCI).  Newsflow was good overall, with strong results and two successful IPOs, but dampened somewhat by concerns about growth prospects.

Big news

  • Two anticipated IPOs fared very well indeed.  Luxury casual ready-to-wear brand Brunello Cuccinelli opened at a 34 percent premium to its IPO price, valuing the company at nearly 700 million euros, or a 16.4x EBITDA multiple, and went on to increase by a further 50 percent in its first day of trading.  Luggage maker Tumi also posted a stellar performance, debuting at above its IPO price range, with a market capitalisation of $1.2 billion or a 17.2x EBITDA multiple. Tumi closed its first day of trading 47 percent up.
  • Both LVMH and PPR announced strong first quarter results.  LVMH’s revenues rose 25 percent in the first three months of the year (14 percent like-for-like), driven by Asia and the US.  PPR’s luxury division saw first quarter sales increasing by nearly 18 percent on a comparable basis, driven by growth in mainland China and increased tourist spend in the US and Europe.  Both groups were confident in the outlook for 2012 but warned over difficult trading in Europe.
  • Other sector participants however came out with more mixed results.  Burberry witnessed a slowdown in growth in its fourth quarter, driven in part by softness in the US.  Coach also suffered from a slowdown in growth in the US, partly due to the company’s more stringent  pricing policy.  Hugo Boss performed well but warned that the current growth momentum could not be maintained in China.

Going up

  • Mulberry continued its near vertical ascent since the beginning of the year, climbing 16 percent this month.  Since January, the stock has gone up by over 50 percent, albeit on a small float representing 15 percent of the equity.  The brand, majority-owned by the Singapore-based Ong family, is now pursuing growth opportunities in Asia and reaping the benefits of its huge potential.
  • A late rally in its share price sent Ferragamo up nearly 16 percent this month, undoubtedly helped by the performance and valuation metrics of fellow Italian luxury brand Brunello Cuccinelli.

Going down

  • Coach highlighted softness in the US market in its quarterly results, prompting a mini-sell off.  The stock ended the month 7 percent lower.
  • Both LVMH and PPR finished down a few percentage points, not helped by negative market sentiment around the French elections.

What to watch

  • Cracks are beginning to appear in the performance of some sector participants, with mixed signals from the US and some angst about a possible slowdown in China.  As we evidenced in last month’s commentary, sector valuations are directly linked to growth prospects…
Sector Valuation
Note: Ports shares remain suspended pending the publication of its 2011 results
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.