When Will Luxury's Perfect Storm Pass?
Add in the threat from tariffs and a weak dollar, which translates into less revenue in euros, and it's little wonder the MSCI Europe Textiles, Apparel and Luxury Goods Index has lost about a quarter of its value since February.
The second-quarter reporting season, which starts in earnest this week, is likely to be grim. But over the past week, there have been some glimmers of hope. The worst isn't over exactly, but it might soon be.
For a start, appetite among Chinese consumers for Cartier Love bangles and Burberry trench coats doesn't seem to be getting any worse.
Chinese spending in Japan is contracting — with Richemont 's sales in the country down 15% in the three months to the end of June, compared with a 59% increase in the year earlier period — due to the stronger yen. This will be a drag on sales across the industry.
But Swatch AG said it had seen the first signs of improvement in China, with a pickup in online sales and a reduction in stocks of watches at third party retailers.
Swatch Chief Executive Officer Nick Hayek often looks on the bright side. But Richemont also saw a 7% fall in sales in China, Hong Kong and Macau in its fiscal first quarter, about half the rate of decline in the preceding three months. This was echoed by Burberry Group Plc, which generates about 30% of sales from Chinese consumers at home and abroad. Chief Financial Officer Kate Ferry said the British luxury brand was also seeing a quarter-on-quarter improvement and 'a little bit of stabilization' in China.
In the US, financial markets appear to be shrugging off the tariff trauma, with the S&P 500 Index reaching a new high and Bitcoin touching a record $120,000. Given that US luxury demand is correlated with financial wealth, this bodes well. It's possible this is feeding into demand for Brunello Cucinelli SpA's cashmere already: The tech bros' favourite outfitter said sales excluding currency movements rose 11% in the second quarter, and it forecast a 10% increase this year.
Investors shouldn't get ahead of themselves, though. Some of the surprises so far have been company specific.
Cucinelli sells to the 1%, and while it might not have a logo, it has become a signifier that the wearer is part of an exclusive club that can afford to pay $400 for a T-shirt and $8,000 for a cable knit cardigan. Not many other brands command this type of clientele.
Richemont's jewellery is also shining bright, thanks to the luxury market maturing — many who bought bags 20 years ago are shifting to baubles — and the fact that price increases for leather goods have made bangles and necklaces better value for money.
As for Burberry, which reported a 1% decline in fiscal first-quarter same-store sales — less than the almost 4% fall that analysts had expected — this compares with a period a year ago when same store sales slumped 21%.
LVMH, the industry bellwether, reports second-quarter earnings this week, and they won't be pretty. The behemoth has gone from being one of the strongest performers to one of the weakest, thanks to its reliance on leather goods, which are suffering the most from consumer fatigue. It is also facing some company-specific issues, such as a hard landing after spectacular growth at Dior, difficulties in its drinks division, and supply chain problems at Loro Piana, a rival to Cucinelli.
Yet even though we are probably closer to the bottom of the bling bloodbath than the top, many valuations are pricing in the worst.
LVMH is trading on a forward price-to-earnings ratio of about 19.5 times, toward the bottom of its five-year average, while Prada SpA shares have lost about 30% since February, as investors took fright at its €1.25 billion ($1.5 billion) purchase of Versace. While the earnings side of the equation could fall further, this looks harsh.
Not all luxury stocks are showing a bust. Investors in Hermes International SCA are paying about 50 times the next 12 months' earnings because the brand typically outperforms in tough times, given that demand for its iconic Birkin and Kelly bags outstrip supply. Burberry's shares have more than doubled since September. A successful turnaround, and the company being able to keep any challenges in check, is already priced in.
Kering SA stock has risen about 14% since the Gucci owner named Renault 's Luca de Meo as its new CEO last month. That looks optimistic. Even if De Meo is able to sell Kering's 30% stake in Valentino, he still has €10.5 billion of net debt and creative transitions at most of the company's brands to deal with.
For investors, a return to bling's boom years still looks far off. But by the time we get to fashion month in September, conditions might look at little less grim. New designers at Chanel, Dior and Gucci are likely to delve into the archives for inspiration this fall. A brighter luxury market would be another retro trend worth embracing.
Bloomberg Opinion
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
France 24
an hour ago
- France 24
Stock markets fall as trade relief fades, eyes on data and earnings
While Donald Trump's agreement with the European Union on Sunday was seen as better than a tariff standoff, observers pointed out that the US president's 15 percent levies -- with none on American goods -- were still much higher than before. The pact, which followed a similar one with Japan last week, still left many worried about the economic consequences, with auto companies particularly worried. "The 15 percent blanket levy on EU and Japanese imports may have helped markets sidestep a cliff, but it's no free pass," said Stephen Innes at SPI Asset Management. "With the average effective US tariff rate now sitting at 18.2 percent... the barrier to global trade remains significant. The higher tail risk didn't detonate, but its potential impact on the global economy hasn't disappeared either." And National Australia Bank's Ray Attrill added: "It hasn't taken long for markets to conclude that this relatively good news is still, in absolute terms, bad news as far as the near term (through 2025) implications for eurozone growth are concerned." Traders are also keeping an eye on US talks with other major economies, including India and South Korea. After a tepid day on Wall Street -- which still saw the S&P and Nasdaq hit records -- Asia turned negative. Tokyo, Hong Kong, Shanghai, Sydney, Singapore, Wellington, Taipei, Manila and Jakarta were all in the red. The euro held its losses from Monday, having taken a hit from worries about the effects of the trade deal on the eurozone. The first of two days of negotiations between top US and Chinese officials in Stockholm concluded Monday with no details released, though there are hopes they will agree to extend a 90-day truce that ends on August 12. The two imposed triple-digit tariffs on each other earlier this year in a tit-for-tat escalation, but then walked them back under the temporary agreement reached in May. Investors are also looking ahead to a busy few days that includes earnings from tech titans Apple, Microsoft, Meta and Amazon, as well as data on US economic growth and jobs creation. That all comes as the Fed concludes its policy meeting amid increasing pressure from Trump to slash rates, even with inflation staying stubbornly high. While it is expected to stand pat on borrowing costs, its post-meeting statement and comments from boss Jerome Powell will be pored over for clues about its plans for the second half of the year in light of the tariffs. Oil prices extended Monday's rally after Trump shortened a deadline for Russia to end its war in Ukraine to August 7 or 9, following which he vowed to sanction countries buying its crude. Key figures at around 0230 GMT Tokyo - Nikkei 225: DOWN 0.9 percent at 40,623.32 (break) Hong Kong - Hang Seng Index: DOWN 1.1 percent at 25,290.03 Shanghai - Composite: DOWN 0.1 percent at 3,595.46 Euro/dollar: DOWN at $1.1592 from $1.1597 on Monday Pound/dollar: DOWN at $1.3354 from $1.3356 Dollar/yen: UP at 148.61 yen from 148.52 yen Euro/pound: UP at 86.81 pence from 86.80 pence Brent North Sea Crude: UP 0.1 percent at $70.11 per barrel
Fashion Network
7 hours ago
- Fashion Network
France lashes out as EU agrees to tariff pact with Washington
France has denounced the new trade agreement between the European Union and the United States as a 'submission,' even as most EU members acknowledged the deal was unequal but necessary to avoid an economically damaging trade war with Washington. The framework agreement, announced Sunday between two economies representing nearly a third of global trade, allows the U.S. to impose a 15% import tariff on most EU goods starting next month. The deal offers limited protection for key sectors, including the automotive and pharmaceutical industries. While the 15% rate is half of what Washington initially threatened, it still exceeds European expectations significantly. U.S. President Donald Trump, who has sought to reshape global trade using tariff leverage since returning to the White House earlier this year, praised the accord during a visit to Scotland, calling it 'the biggest deal ever made.' But France, the EU's second-largest economy, was outspoken in its disapproval. 'It is a dark day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission,' French Prime Minister Francois Bayrou wrote on X (formerly Twitter). French President Emmanuel Macron has made no public statement on the matter. While the mood across Europe was subdued, most governments agreed that failing to reach an agreement would have triggered a far worse scenario. 'This agreement has succeeded in averting a trade conflict that would have hit the export-oriented German economy hard,' said German Chancellor Friedrich Merz, whose country leads the EU bloc's economic rankings. EU Trade Commissioner Maros Sefcovic said during a press conference that allowing 30% tariffs to be imposed would have been 'much, much worse.' 'This is clearly the best deal we could get under very difficult circumstances,' he added. Some member states acknowledged the deal provides stability following months of trade tensions with the U.S. Sweden described it as the 'least bad alternative,' while Spain supported it 'without enthusiasm.' A final deal will likely require ratification from EU capitals. Still work to do Because trade policy falls under the European Commission's authority, French objections are unlikely to derail the framework agreement. However, the deal has not yet been finalised. Many of the agreement's specifics remain unknown. EU officials said they expect clarification in a joint statement to be released by August 1. Additional negotiations will follow to turn the agreement into a full-fledged deal. Germany also called for further negotiations, particularly regarding the steel sector. President Trump said the deal—alongside an investment package that exceeds the Japan agreement signed last week—would strengthen trans-Atlantic relations after years of what he described as unfair treatment of U.S. exporters. Japan's package will include up to $550 billion in equity, loans and guarantees from state-run agencies, to be invested at Trump's discretion, according to Tokyo. In contrast, EU officials stated that the EU's $600 billion investment figure is based on non-binding intentions from the private sector. The agreement is expected to bring regulatory clarity to European industries, including those in the automotive, aerospace, and chemical sectors. However, EU negotiators had originally pushed for a zero-for-zero tariff deal. A 15% tariff remains significantly higher than the U.S.'s average import tariff rate of 2.5% before Trump's return. More clarity, but a challenge European stocks opened higher on Monday, with the STOXX 600 reaching a four-month high. Tech and healthcare sectors led the gains. 'The 15% rate is better than the market was fearing,' said Jefferies economist Mohit Kumar. Still, many European businesses remain conflicted about the outcome. 'Those who expect a hurricane are grateful for a storm,' said Wolfgang Große Entrup, head of the German Chemical Industry Association (VCI). 'Further escalation has been avoided. Nevertheless, the price is high for both sides. European exports are losing competitiveness. U.S. customers are paying the tariffs.' A major concern remains how the EU's promise to invest hundreds of billions of dollars in the U.S. and sharply increase energy imports can be realized. It remains unclear whether specific investment pledges have been made, or if the details are still being finalized. While the EU has committed to $750 billion in strategic purchases over the next three years—including oil, liquefied natural gas (LNG), and nuclear fuel—the U.S. may struggle to meet the demand. Though U.S. LNG production capacity is expected to nearly double over the next four years, analysts say it still won't be enough to meet Europe's needs. Oil production forecasts have also been revised downward. Despite the uncertainties, analysts say the deal has reduced market instability. Oil prices edged up on Monday.
Fashion Network
7 hours ago
- Fashion Network
France lashes out as EU agrees to tariff pact with Washington
France has denounced the new trade agreement between the European Union and the United States as a 'submission,' even as most EU members acknowledged the deal was unequal but necessary to avoid an economically damaging trade war with Washington. The framework agreement, announced Sunday between two economies representing nearly a third of global trade, allows the U.S. to impose a 15% import tariff on most EU goods starting next month. The deal offers limited protection for key sectors, including the automotive and pharmaceutical industries. While the 15% rate is half of what Washington initially threatened, it still exceeds European expectations significantly. U.S. President Donald Trump, who has sought to reshape global trade using tariff leverage since returning to the White House earlier this year, praised the accord during a visit to Scotland, calling it 'the biggest deal ever made.' But France, the EU's second-largest economy, was outspoken in its disapproval. 'It is a dark day when an alliance of free peoples, brought together to affirm their common values and to defend their common interests, resigns itself to submission,' French Prime Minister Francois Bayrou wrote on X (formerly Twitter). French President Emmanuel Macron has made no public statement on the matter. While the mood across Europe was subdued, most governments agreed that failing to reach an agreement would have triggered a far worse scenario. 'This agreement has succeeded in averting a trade conflict that would have hit the export-oriented German economy hard,' said German Chancellor Friedrich Merz, whose country leads the EU bloc's economic rankings. EU Trade Commissioner Maros Sefcovic said during a press conference that allowing 30% tariffs to be imposed would have been 'much, much worse.' 'This is clearly the best deal we could get under very difficult circumstances,' he added. Some member states acknowledged the deal provides stability following months of trade tensions with the U.S. Sweden described it as the 'least bad alternative,' while Spain supported it 'without enthusiasm.' A final deal will likely require ratification from EU capitals. Still work to do Because trade policy falls under the European Commission's authority, French objections are unlikely to derail the framework agreement. However, the deal has not yet been finalised. Many of the agreement's specifics remain unknown. EU officials said they expect clarification in a joint statement to be released by August 1. Additional negotiations will follow to turn the agreement into a full-fledged deal. Germany also called for further negotiations, particularly regarding the steel sector. President Trump said the deal—alongside an investment package that exceeds the Japan agreement signed last week—would strengthen trans-Atlantic relations after years of what he described as unfair treatment of U.S. exporters. Japan's package will include up to $550 billion in equity, loans and guarantees from state-run agencies, to be invested at Trump's discretion, according to Tokyo. In contrast, EU officials stated that the EU's $600 billion investment figure is based on non-binding intentions from the private sector. The agreement is expected to bring regulatory clarity to European industries, including those in the automotive, aerospace, and chemical sectors. However, EU negotiators had originally pushed for a zero-for-zero tariff deal. A 15% tariff remains significantly higher than the U.S.'s average import tariff rate of 2.5% before Trump's return. More clarity, but a challenge European stocks opened higher on Monday, with the STOXX 600 reaching a four-month high. Tech and healthcare sectors led the gains. 'The 15% rate is better than the market was fearing,' said Jefferies economist Mohit Kumar. Still, many European businesses remain conflicted about the outcome. 'Those who expect a hurricane are grateful for a storm,' said Wolfgang Große Entrup, head of the German Chemical Industry Association (VCI). 'Further escalation has been avoided. Nevertheless, the price is high for both sides. European exports are losing competitiveness. U.S. customers are paying the tariffs.' A major concern remains how the EU's promise to invest hundreds of billions of dollars in the U.S. and sharply increase energy imports can be realized. It remains unclear whether specific investment pledges have been made, or if the details are still being finalized. While the EU has committed to $750 billion in strategic purchases over the next three years—including oil, liquefied natural gas (LNG), and nuclear fuel—the U.S. may struggle to meet the demand. Though U.S. LNG production capacity is expected to nearly double over the next four years, analysts say it still won't be enough to meet Europe's needs. Oil production forecasts have also been revised downward. Despite the uncertainties, analysts say the deal has reduced market instability. Oil prices edged up on Monday.
