Savigny Luxury Index


Euro Slipup

The Savigny Luxury index (“SLI”) recorded its best monthly performance this year, climbing almost 7%; close but not quite matching an impressive 8.6% rise in the MSCI World Index (“MSCI”).

The Savigny Luxury index (“SLI”) recorded its best monthly performance this year, climbing almost 7%; close but not quite matching an impressive 8.6% rise in the MSCI World Index (“MSCI”).  This month has defied all expectations with an equity rally prompted by a slipup of the euro amidst speak of further interest rate cuts and quantitative easing, despite a continuingly glum outlook for the sector.

Big news

• President of the ECB Mario Draghi stunned markets by raising the prospect of further rate cuts and quantitative easing at the Bank’s next policy meeting in December.  This caused European stocks to rally to a two-month high on the day and the euro to plunge to new depths.  Europe-based luxury stocks soared with the prospect of tourists, notably Chinese, piling into Europe for euro-bargains.

• Very little positive newsflow came from the sector.  In fact Bain forecast 2015 to be the worst year for the luxury industry since 2008; Swiss watch exports continued their downward trend in September (-7.9%); and Burberry, Boss and LVMH all said that the China slowdown had impacted their sales.  Nevertheless, LVMH’s third quarter results were saved by strong performance from its cognac & spirits business, whilst Richemont, on the other hand, benefitted from a one-off accounting gain of up to Eur670 million from the Yoox/Net-à-Porter merger.  The only genuinely positive news came from Kering, whose third quarter results hinted at a recovery for Gucci.

• In the same month that Alexander Wang produced his last show for Balenciaga, two of the sector’s most iconic brands lost their creative directors to the surprise of many:  Raf Simons stepped down from his post at Dior amongst talk of designer burnout, and Alber Elbaz was pushed out of Lanvin by its majority shareholder.

• Corporate activity was markedly subdued this month.  Gerard Darel was bought out by its founding family, who had sold the business to Advent in 2008; Chanel bought a vineyard in Napa and one of Savile Row’s edgiest tailors, Richard James, announced he was in talks for a stake sale.

Going up

• Kering’s share price was boosted by signs of recovery at Gucci, with the stock gaining over 15%.

• Richemont’s share price benefitted from a one-off accounting gain from the Yoox/Net-à-Porter merger, rising 12% on the month, despite pressure from yet another month of declining Swiss watch exports.

• LVMH announced a strong performance in its cognac and spirits division in the third quarter, offsetting a poorer performance in fashion and leather goods.  The stock gained more than 11%.

Going down

• Michael Kors continued its fall from grace, falling a further 8.5% in October.

• Ralph Lauren and Moncler got caught in the luxury sector’s chill winds, losing 6.3% and 8.4% respectively.

• Burberry’s share price dropped in the aftermath of its disappointing results, which highlighted the brand’s over-exposure to cooling-down China.  The stock ended the month almost 3% down.

What to watch

The reprieve of the sector as a result of the euro slipup may only be temporary.  Mario Draghi back-tracked on his statement made earlier in the month, eventually casting doubts over further monetary stimulus in the Eurozone.  The euro rose for three consecutive days at the end of October, its longest rally in seven weeks.  Where it stabilises will have an impact on our sector.

Sector valuation