Market Pulse / Bottoms up


Investors breathed a sigh of relief as first half results were by and large better than expected

Savigny Luxury Index Graph





The Savigny Luxury index (“SLI”) staged a relief rally this month, gaining over 7 percent whilst the MSCI World Index (“MSCI”) gained almost 4 percent. Better-than-expected first half results took some of the sting out of the sector’s most severe correction in seven years.

Big news

The luxury sector stepped up to the plate this first half, surprising investors on the upside. Burberry and Tod’s sales contracted less than anticipated, whilst Hermès, LVMH and Kering all posted respectable single digit growth. Leaders of the pack were Brunello Cucinelli and Moncler, both crediting strong growth in Asia with respective sales growth rates of 10 and 17 percent.

Christopher Bailey finally threw in the towel as CEO, appointing industry veteran Marco Gobbetti (currently CEO of Celine) to replace him. Bailey will take on the role of President and Chief Creative Officer. Burberry’s CFO, Carol Fairweather will also step down, to be replaced by luxury sector outsider Julie Brown, who brings to bear a strong track record in delivering cost saving and restructuring programmes. Dior found someone to step into Raf Simons’ shoes: Maria Grazia Chiuri will join from Valentino, where she helped transform the fading Italian label into one of the luxury sector’s fastest growing and most profitable brands. The rumour mill has also been spinning about an impending departure by Ghesquière from Louis Vuitton.

July was the busiest month so far this year with ten deals in total, of which four were in cosmetics and three in the fashion space. L’Oréal closed its biggest deal since 2008, with the acquisition of IT Cosmetics, a beauty brand set up by news anchor Jamie Kern Lima specifically to address problem skins. The French cosmetics giant also bought niche fragrance brand Atelier Cologne. L Catterton announced a minority investment in Korea-based Clio Cosmetics, which subsequently filed for an IPO. Carver Korea, an unlisted beauty group whose flagship skincare line is A.H.C., sold a majority stake to Goldman Sachs and Bain Capital for over $300 million. In fashion, LVMH sold Donna Karan to G-III holdings for $650 million, VF Corporation offloaded its contemporary fashion unit to Israel-based Delta Galil Industries for $120 million and Moncler’s CEO opened up the capital in his holding company which owns 27 percent of Moncler, to Temasek and Dufry. Chanel completed two upstream deals this month, acquiring a leather tannery specialising in lambskin as well as its fourth silk specialist, also based in the Loire region where the brand has set up a specialised silks production unit. Finally, Hermès bought a minority stake in French shoe brand Pierre Hardy, whose namesake designer is also the creative director for Hermès’s shoe and jewellery collections.

Going up 

  • Kering gained almost 17 percent following its strong first half results, boosted by the successful repositioning of Gucci, continued stellar performance of Yves Saint Laurent as well as the restructuring of Puma.
  • Burberry gained almost 14 percent on the month as the market welcomed changes in its leadership.
  • LVMH, Hermès and Moncler’s share prices posted double digit gains on the back of strong results announcements.

Going down

  • Swatch’s stock lost ten percent this month as the company posted a 50 percent decrease in first half operating profit driven by tough trading conditions in Hong Kong and Europe.

What to watch

All that glitters is not gold: many of the first half results announcements masked an underlying malaise in the luxury sector. Normally bullet-proof Hermès pointed to ongoing difficulties, driven by continued security concerns in Europe and specifically France, which remains crippled by an extended state of emergency, and noted that sales had decreased in all of its metiers outside leather goods. Likewise, LVMH’s strong overall performance pulled wool over continuing sluggishness in its Fashion and Leather Goods divisions. Tourist spending was down six percent in May and let’s not forget Swatch’s profit warning. How long-lived this relief rally will be remains to be seen.

Sector Valuation

Savigny Partners valuation table