LVMH announced 1Q13 sales of €6.95bn (+7% growth) that were -3 below consensus forecast (+9-10%). Sales included a 1-time benefit from the consolidation of DFS’ Hong Kong airport concession last December. Excluding this benefit, sales were up only +5%. Sales were driven by strength in Asia and United States, offset by weakness in Europe and Japan. On a category perspective, sales were soft at Louis Vuitton Fashion & Leather (+3% vs +5% consensus) and Watches & Jewelry (+2% vs +4% consensus), while Wine & Spirits drove the sales growth (+7%). Management did not provide guidance for the year, but noted that Europe remains challenging. I expect overall sales for the year to be challenging given the weakness in Europe and slowing growth in China and Japan. I expect Fiscal Year 13 sales growth of +7%. The Fall 13 Collections for Fashion & Leather looked solid and the Dior Cosmetics and Sephora businesses continue to be strong.
Prada reported 4Q12 EBITDA of €325m that was +19% to last year, in line with consensus estimates. Gross margin was up 50 bp to 72.3%, slightly below expectations. Management attributes this to specific 4Q markdown activity in shoes and RTW. I foresee the upcoming quarters as challenging for Prada, as well as the rest of the Luxury players. Tourism into Europe is declining and Chinese consumption appears to be slowing as well. Although both the core Spring and Fall 2013 Collections were impressive, Prada’s Miu Miu line was a bit disappointing. Management notes that there is huge upside in Miu Miu, which has been difficult to leverage.
China’s First Lady, Peng Liyuan, has caught the attention of the fashion world. Rather than wearing Jason Wu, Thom Browne, or the Uber Luxury brands from Europe (LVMH, PPR), she is sporting a Chinese label, based in Guanzhou called “Exception.” In the past few days, Exception’s website has crashed as a result of the numerous hits to the site by Chinese consumers. Could this signal a shift in Chinese consumer behavior towards more up and coming local brands? China accounts for 25% of the global Luxury purchases and 50% of luxury sales in Asia. This Trendscending display by the First Lady of China could have ripple effects for sales of the established Luxury brands in the years to come. Certainly a potentially Trendscendental movement to follow!
Exception is designed by Ma Ke and the website is mixmind.com
As I predicted a month ago, Saint Laurent’s A/W2013 Menswear Collection was a prelude to the impending failure of the Womenswear Collection. Hedi should change his last name to Mugatu, because the Collection was “Dereclite” (think Zoolander the Movie). PPR is lucky that it has Bottega Venetta, which produced another spectacular Collection, to offset future lost sales from YSL. Last quarter, YSL’s sales grew at +13%. I expect YSL’s sales to grow at below +5%, if lucky. Remember August 2012, when YSL announced sales growth of +42%? What happened? Oh, that’s right, Stefano Pilatti was at the helms. It’s the price you pay in fashion when you roll the dice with a changing of the Creative Guards. Unfortunately, when you’re a publicly traded company, investors won’t be kind!
Tomas Maier is a godsend! Bottega Veneta is once again my favorite Collection from the Milan F/W13 shows. Expect the crown jewel of the PPR group to produce another +30% sales increase the next Season.
Marc Jacobs A/W2013, “Hunger Games” inspired show, including an indoor sun! One of the sexiest MJ Collections! Photo: Ed Kavishe / Fashion Wire Press
PPR announced stellar earnings of which only Michael Kor’s recent earnings could outshine! Sales in the 4Q grew at +14%, well above consensus of +9% as well as industry trends. More importantly, EBIT margin for the 2H was 26.9%, far exceeding LVMH’s recent disappointment of 21.5%. The star of the Group was Bottega Venetta (SS2013 pictured above) whose sales grew by +33% to LY, pummeling consensus estimates of +16% to 17%. Heading into the next Season, I expect PPR to continue its stellar growth and maintain its excellent margins. However, expect sales and margin to be dragged down by YSL (only +13% to LY) and its horrible rebranding by the hands of Hedi Slimane. The A/W2013 Mens for YSL was disappointing and I expect the same for the Womenswear.
Despite a 55% exposure in total sales to Italy, Tod’s stock generated a 52% return vs 32% for the Luxury Index. Over the last 5 years, the company has delivered solid results with limited earnings volatility and consistently beat consensus expectations. Tod’s has greatly increased its control over distribution through the expansion of self-owned stores and sound management of wholesale doors. More importantly, Tod’s has expanded its geographical as well as product mix from Italian-centric towards the US and Asia and from Shoes to Leather Goods. Among the luxury companies, Tod’s is the company that has enjoyed the most rapid transformation of its business mix. Tod’s Asia and US sales now represent ~40% of group sales from just over ~20% in 2008. Leather goods have outperformed Shoes for the past two consecutive years and now contribute ~17% of revenues (~15% in 2009). I predict that Leather goods will contribute ~20% of Tod’s sales. Management expects the core Shoes category to grow in single-digits longer term. I believe that Tod’s focus on its Italian craftsmanship, iconic heritage, and timeless chic luxury will continue to drive its sales and deliver a 12% sales CAGR within the next 3 years.
Bottega Veneta SS 2013, my favorite Collection from Milan Fashion Week thus far; vintage 40s style dresses wtih sleek, modern refinement.
Prorsum = onward… unfortunately, Burberry’s Spring 2013 Menswear was less than onward… Today, Burberry announced a sharp deterioration in sales for the first 10 weeks of 2Q13 to 8 September. Management noted that the deceleration was broad-based across Burberry’s key markets (Europe, US, China). From the Menswear show in July, I expect that Burberry will display the same bright, colorful, metallic looks on the runway next week. I wasn’t feeling the Collection and anticipate the women’s collection to be just as disappointing. Christopher Bailey had a long run for the past 4 seasons of continuously dazzling us. But, I expect next week to fizzle. Their preannouncement was a prelude. For now, Prorsum = stagnant….