Research Roundup: Luxury Goods
The recent credit squeeze does not appear to have had much impact on the luxury goods market, based on recent company results.
As breakingviews.com pointed out in the Wall Street Journal, “If there’s a financial crisis going on, nobody told the world’s luxury brands.” LVMH Moët Hennessy Louis Vuitton, the French luxury group, and Burberry, the UK apparel designer, say their wares are flying off the shelves. At LVMH, third-quarter revenue grew 15% — the fastest pace in years — driven by handbags, watches and jewelry. Appetite for Burberry’s tartan creations pushed its first-half retail sales up by 25%, as the group continued its march across the American heartland.
But breakingviews cautions that “what the credit crunch hasn’t tarnished, the U.S. economy still might.”
Credit Suisse last month initiated coverage on LVMH with an “Outperform” rating, noting it has enduring appeal with a very strong competitive position relative to its peers in a resilient market.
Prior to the most recent results, Morgan Stanley reiterated its “Overweight” rating on Burberry’s, while Citi reiterated its “Buy “rating at a lower target price, noting that the firm’s recent underperformance relative to peers was unjustified.
Today’s New York Times has an interesting interactive graphic on the US retailing sector that illustrates Tiffany’s stellar performance in both short and longer term stock price appreciation. (Scroll to near the bottom of this page to locate the Multimedia section and click on the graphic.)
Bear Stearns reiterated its “Outperform” rating on Tiffany last week after meeting with management, also stressing the firm’s strong brand and the resilience of the luxury goods sector. However, breakingviews cautions that Tiffany’s risks losing its luxury brand cachet through its plan to open as many as 70 new stores in mainstream shopping locations.
By way of contrast to the luxury goods firms, the laggards on the Times grid are companies such as Circuit City, Dillard’s, and Office Depot, all of which are second tier players in highly competitive lower-margin sectors offering products largely undifferentiated from their competitors.
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October 24th, 2007 at 12:08 pm
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