Market Pulse | Cashing In

Uncertain expectations over Christmas trading amidst mixed retail signals led many institutional investors to take their profit before closing their books at year-end. Meanwhile, the travel retail channel continues to surge and M&A activity remains buoyant, reports Pierre Mallevays of Savigny Partners.

Savigny Luxury Index December 2013 | Source: Savigny Partners

LONDON, United Kingdom — Both the Savigny Luxury Index (“SLI”) and the MSCI World Index (“MSCI”) suffered from profit-taking in early December, although the MSCI recovered lost ground in the second half of the month, whereas the SLI ended more than 2 percent down.

Big news

• Uncertain expectations over Christmas trading amidst mixed retail signals led many institutional investors, who enjoyed a strong 2013 with the SLI raising 13 percent for the year, to take their profit before closing their books at year-end.

• The travel retail channel continues to be fuelled by a surge in Chinese tourism. Revenues from this channel are set to double by 2020. Chanel, Hermès and Gucci have all announced further investment in new airport boutiques.

• A Dutch arbitration court ruled that Tiffany must pay Swatch Group CHF402 million in damages over their failed joint venture to produce and market watches. Tiffany lowered its full year earnings outlook as a result.

• M&A activity continued to be buoyant. The new year will see the Versace family deciding on a sale of 20 percent of their closely held company.  Blackstone, CCMP and Italy’s Fondo Strategico have been shortlisted. The Italian footwear brand Alberto Moretti was acquired by French and Italian private equity firms EMCap and GenCap, Lucky Jeans was sold to US private equity firm Leonard Green & Partners, luxury down jacket brand Canada Goose was acquired by Bain Capital, Jones Apparel Group was sold to US private equity firm Sycamore Partners, and Vicini, whose main brand is Giuseppe Zanotti, has agreed to sell a 30 percent stake to L Capital, the LVMH-sponsored private equity fund.

• Moncler pulled off the most successful European stock market debut of 2013. Its shares surged almost 50 percent on the first day of trading, giving it a market capitalisation of €3.7 billion. Its shares had initially been priced at an already high EBITDA multiple of twenty.

Going up

• Tiffany’s share price continued its Asia-Pacific fuelled ascent despite the recent knock to its earnings following the Swatch court ruling.

Going down

• Prada’s share price dropped by nearly 8 percent after it reported a smaller than expected rise in third-quarter net profits, driven by adverse currency movements and slowing growth in China and Europe.

What to watch

Many companies are looking to 2014 as a year of stabilisation. For most, expansion plans will be muted, with instead a temptation to raise prices and a focus on improving existing retail operations. Bucking the trend will be, at the opposite end of the sector’s price ladder, ultra-luxe players such as Bottega Veneta or Berluti and affordable luxury/contemporary brands, both of which will seek continued expansion.

Sector Valuation