Market Pulse | Same Story, Different Month

Savigny Luxury Index July 2012 | Source: Savigny Partners

LONDON, United Kingdom — The Savigny Luxury Index (“SLI”) inched up 1.0 percent in June, relative to an uplift of 2.8 percent in the benchmark MSCI World Index (“MSCI”).  Newsflow from China continued to worry investors and sector results, although strong, did show signs of a slowdown in growth over the last few months.

Big news

  • China’s growth rate slowed for a sixth consecutive quarter to its slackest pace in over three years putting it on track for the slowest year of growth since 1999.  The country cut its base interest rate for the second time within the space of a month by 25 basis points.  Market observers have been talking about a soft landing and many view the upcoming handover of power in the communist party this autumn as a turning point for the economy.
  • There have been mixed signals in company results announcements this month.  Burberry set the tone at the beginning of the month announcing first quarter sales growth of 11 percent (vs. expectations of 13 percent), citing a slowdown in sales growth in China but confirming its commitment to growing its presence in this strategic market.  Hermès, LVMH and PPR all announced strong first half results and were more upbeat about China; nevertheless both Hermès and LVMH pointed to a slowdown in growth in the second quarter relative to the first quarter.  Coach came out with fourth quarter results below market expectations, mainly due to a slowdown in sales in the USA.
  • Valentino found a new home with the Qatari Royal family, who also own Harrods and have stakes in LVMH and Porsche.  A luxurious price tag of €710 million was reportedly paid for Valentino, representing about 20 times historic EBITDA.

Going up

  • PPR ended the month almost 9 percent up, driven by strong results of its luxury division and the announcement of the sale of a 29.8 percent stake in its motor car distribution subsidiary CFAO to Toyota Group.
  • Swatch and Richemont saw their share prices boosted by 4.1 percent and 6.9 percent respectively on the back of solid Swiss watch export data for June.

Going down

  • Coach’s share price tumbled on the back of disappointing fourth quarter and year-end results, resulting in a fall of nearly 16 percent for the month.

What to watch

  • Travel retail is gaining momentum: sales at airports and other travel venues have risen faster than at regular stores for many luxury players in recent years.  Generation Research forecasts worldwide duty-free and travel retail sales of perfumes, cosmetics and luxury goods to jump 25 percent to $45 billion over the next two years.
Sector Valuation
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.