HEARD ON THE STREET: More Fizz In Luxury Goods Sector

20th Jul 2010 13:55

By Matthew Curtin A DOW JONES COLUMN The recession is looking like a distant memory for the luxury goods industry. So strong is the rebound in the second quarter that there may still be value in the highly rated sector. Hermes International, the French group famous for its hand-stitched handbags, reported second-quarter sales up 20% year-on-year on a constant currency basis thanks to booming demand in Asia outside of Japan and in the US. Champagne maker Groupe Laurent Perrier increased sales by 17% in the three months to June 30 compared to the previous year. Exports of Swiss watches were up 35% in June from a year earlier. True, part of the story is the easy comparison with the first half of 2009 when sales of luxury goods plummeted and retailers ran down inventory aggressively as recession followed the financial crisis. But as worries over economic Armageddon have eased, amid robust growth in much of Asia and a stronger-than-expected recovery in the US, the well-heeled are spending again. A weak euro has provided an extra revenue fillip for European luxury goods suppliers. In general, the industry has also kept costs under control. Hermes says first-half operating profit improved faster than sales. Shares in Hermes, a tightly-held family-controlled company with a small free float, are an expensive way to play the sector rebound, trading at 28 times forecast 2012 earnings. But many leading luxury goods groups are trading well below historic multiples, including LVMH at 15 times forecast 2012 earnings, Compagnie Financiere Richemont at 13 times, and PPR at 10 times. These groups are more diversified and have greater exposure to Asia than Hermes. The UK's Burberry, trading at 15 time earnings, has just bought back its Chinese franchises, giving it a better platform for growth there. Of course, a double dip recession in Europe and US would take some fizz out of the sector. A mix effect may weigh on some parts of the industry. Sales of Laurent Perrier's cheaper champagnes out paced its main brand, squeezing margins. But for now there seems plenty for luxury goods investors to be toasting. (Matthew Curtin has been a financial journalist since 1990. He has written on international finance and business - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by email: [email protected]) TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments. (END) Dow Jones Newswires July 20, 2010 08:55 ET (12:55 GMT)