12/20/2010 3:33 PM ET|
Luxury-goods stocks are flying high
Companies that cater to rich tastes slashed costs during the recession and are now seeing their bottom lines swell as sales surge. Are the stocks bargains now?
While many on Main Street are struggling, companies that sell to the biggest spenders -- among them Tiffany (TIF, news), Cartier, LVMH Moët Hennessy Louis Vuitton (LVMUY, news) and Rémy Cointreau (REMYF, news) -- are having themselves a merry little Christmas.
Luxury-goods sales are surging here and abroad. Profits are widening. And stocks are flying high.
Last summer (with impeccably bad timing), fund manager Guggenheim/Claymore wound up the Claymore/Robb Report Global Luxury Index exchange-traded fund, which tracked a broad basket of the world's top luxury stocks.
With the help of company filings and data from FactSet, I've reconstructed it. And if the fund were still around, it would be zooming.
"The luxury sector was the sector to be in in 2010," says Caroline Reyl, who manages a 1 billion-euro-plus, luxury-focused premium-brands fund for Pictet, an asset management company in Zurich. "Our fund is up 44% this year. We're slightly above our peak from 2007."
What are the reasons? Some of this is a stock market effect, she says. Luxury stocks have been playing catch-up since plummeting during the crash.
But the really interesting story relates to the fundamentals. Luxury-goods companies are selling to the two groups of people who have any money left: the rich, who are getting richer and richer, and consumers in emerging markets, who are getting richer.
"About 40% of the sales of premium brand companies are related to the emerging-market consumer," says Reyl. Cargo ships are carrying a lot of Swiss watches, cases of champagne and fancy Italian shoes to the newly wealthy in China, Brazil and India. And emerging-market tourists are carrying a lot of luxury goods home themselves when they travel.
Greater China -- including Hong Kong and Taiwan -- accounts for 15% of global luxury demand, says Reyl. She believes that by the end of 2011 China will have overtaken Japan, once the powerhouse of luxury sales.
Luxury companies that slashed costs during the recession, weeding out waste and closing down weak stores, are seeing the results flow through to their bottom lines.
It's not just about emerging markets, either. High-end consumers here in the United States are in much better shape than those further down the economic ladder, and they're spending again.
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