Many of the developing countries in emerging markets, especially in Asia, have experienced rapid GDP growth and increasing wealth over the last decade. Growing wealth coupled with rising disposable incomes has led to a steep rise in demand for luxury goods and services.
Bain & Company’s spring luxury update states that “The luxury market is on a tear halfway through 2018. A positive trend across all regions is set to drive this market higher by 6-8 percent (at constant exchange rates) this year to reach €276-281 billion. “China” and “millennial state of mind” remain the buzzwords in an industry that could reach €390 billion globally in sales by 2025.”
Macrovue’s investment team have analysed three top performing luxury good companies.
Michael Kors (+95.1% over 12 months to 31 July 2018)
KORS reported FY 1Q19 earnings per share (EPS) of $1.32, vastly exceeding Wall Street’s estimate of $0.94. The results were driven by 26% revenue growth, a +229bps gross margin expansion and lower selling, general and administrative expenses (SG&A) (43.2% vs 45.6% expected).
Other highlights included:
a) Jimmy Choo revenues with management raising FY19 expected revenues by $10M.
b) KORS wholesale revenues, particularly in North America, with the company “very encouraged by the overall response to our product in the Department Store channel”.
c) Much improved Michael Kors wholesale gross margins (lower promotional activity) and favourable product mix noting +0.2% reported same-store-sales.
Guidance was positive with management raising expected FY19 EPS by 25 cents.
Moncler (+80.0% over 12 months to 31 July 2018)
Moncler has reported very strong 1H 2018 results with sales up 27% year-on-year. Moncler's developing digital initiative and its nascent “Genius” project are already having a positive effect, giving confidence that the consensus' 16% fiscal 2018 sales-growth estimate is far too conservative and could be raised before year end.
Own-retail like-for-like revenue growth accelerated to 27% in the first half. New store openings and renovations (2H-weighted) will contribute further to growth. The high winter 2017 full-price sell through points to operating margin expansion as less products make it to outlets in the fall.
Inventories continue to expand slower than revenue, due to omnichannel efficiencies. Moncler follows in LVMH's footsteps, demonstrating that Chinese consumer confidence and luxury spending at home and abroad are yet to be affected by U.S. tariffs.
Kering (+67.4% over 12 months to 31 July 2018)
Kering continues to deliver solid results. 1H18 group recurring operating income was up 53% year-on-year to €1.77bn on reported sales up 27%, nicely above the consensus estimate of €1.72bn.
Kering also saw a 470bp EBIT margin expansion to 27.5% (consensus. 27.1%). This was courtesy of a significant increase in operating margin at Gucci (+620bp YoY to a record 38.2%) driven by gross margin gains (production efficiencies and a favourable channel mix), operating expense leverage (higher store productivity) despite significant reinvestments in the brand (especially in-store expenses, communication and omni-channel) and continued investments in brand repositioning.
Net finance costs of €97m were down €11m and tax rate on continuing operations was 23.4% (+250p, medium-term guidance is ~25%). This means (ceteris paribus) adjusted recurring net income (group share) of €1.26bn - up 55% year-on-year diluted EPS of €10.02.
You can invest in these companies directly through Macrovue’s Luxury Goods Vue.
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Past performance is not a reliable indicator of previous performance.