Savigny Luxury Index

April 2012

 

No Sparkle Despite Shiny Results

 

The Savigny Luxury Index (“SLI”) continued its sluggish performance this month, ending almost flat compared to a drop of 0.7% in the benchmark MSCI World Index (“MSCI”) (the SLI components actually fell an average of nearly 2% when expressed in local currency).  Newsflow was good overall, with strong results and two successful IPOs, mitigated however by a few warnings about growth prospects. 

Big news

  • Two anticipated IPOs fared very well indeed.  Luxury casual ready-to-wear brand Brunello Cuccinelli opened at a 34% premium to its IPO price, valuing the company at nearly Eur700 million or a 16.4x EBITDA multiple, and went on to increase by a further 50% in its first day of trading.  Luggage maker Tumi similarly posted a stellar performance, launching at above its IPO price range with a market capitalisation of $1.2 billion or a 17.2x EBITDA multiple, and closed its first day of trading 47% up.
  • Both LVMH and PPR announced strong first quarter results.  LVMH’s revenues rose 25% in the first three months of the year (14% like-for-like), driven by Asia and theUS.  PPR’s luxury division saw first quarter sales increasing by nearly 18% 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 inEurope.
  • 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 theUS.  Coach also suffered from a slowdown in growth in theUS, partly due to the company’s more stringent pricing policy.  Hugo Boss performed well but warned that the growth momentum could not be maintained inChina.

Going up

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

 Going down

  • Coach highlighted softness in theUSmarket in its quarterly results, prompting a mini-sell off.  The stock ended the month 7% lower.
  • Both LVMH and PPR finished down a few percentage points, not helped by 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 theUSand some angst about a possible slowdown inChina.  As we evidenced in last month’s commentary, sector valuations are directly linked to growth prospects…

   Sector Valuation