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Positive Trading Updates Help Enhance Luxury | Intelligence, Market Pulse, BoF Professional

London, United Kingdom – While results announcements continued to underscore Covid-19’s impact in the first six months of 2020, comments on current trading were bullish, helping the Savigny Luxury Index to recover some lost ground. Tiffany announced sales in August 2020 were slightly above August last year; Brunello Cucinelli returned to revenue growth in the second half of 2020, assuming an EBITDA margin of approximately 13 to 14 percent. Estée Lauder sales in the fourth quarter (to June 2020) were down 32 percent, but the beauty group’s full-year sales decline was only 4 percent. An early recovery in mainland China and a substantial increase in e-commerce activities have triggered the industry’s recovery, as demonstrated last month.

Fashion shows and trade fairs are making a tentative comeback. Louis Vuitton hosted its Spring / Summer 2021 outdoor menswear show in Shanghai to a predominantly local audience of VIPs and journalists, and plans to take the show on tour to other Asian locations. London Fashion Week in September will be a mix of physical and digital shows. Geneva hosted the first series of “Geneva Watch Days”, a simple watch fair with exhibitors spread across a number of luxury hotels in the city.

The luxury industry continues to venture further down the path of sustainability and ethics: Prada announced it will no longer use kangaroo skin, and Valentino followed by a ban on alpaca wool. Tiffany will expand the traceability of its individually registered diamonds by sharing the full journey of craftsmanship, not just the origin of the rough diamond. Virgil AblohThe latest menswear collection for Louis Vuitton consisted mainly of new looks made from recycled materials and a selection of looks from previous collections; only 2 of the 52 looks are made with new materials. Ralph Lauren invested in Natural Fiber Welding, a sustainable materials science start-up that has developed a process to upgrade natural fibers such as cotton waste into high-quality materials.

Business activity remained subdued in August, with only one other acquisition to report: Italian investment firm Italmobiliare increased its stake in the iconic pharmacy brand Officina Profumo Farmaceutica di Santa Maria Novella from 20 percent to 60 percent, with a reported investment of € 120 million .

The Savigny Luxury Index (“SLI”) gained just over 7 percent in August, outperforming the MSCI by 150 basis points, although not enough to close the gap left by the July decline.

SLI versus MSCI

SLI chart August 2020

Go up

  • Burberry’s stock price rose more than 15 percent this month after the company quashed rumors Riccardo Tisci‘s departure.
  • Capri Holdings’ better-than-feared loss in the first quarter prompted the stock to recover, gaining just over 13 percent in August.

Going to down

  • Safilo’s double-digit decline in quarterly sales, recorded in late July, caused the stock price to fall further in August, losing nearly 7 percent of its value.

What to watch

Despite their rhetoric of better days ahead, luxury goods companies are still cautious about their money. Estée Lauder said it would cut 1,500 to 2,000 jobs worldwide and close 10 to 15 percent of its freestanding stores – in part in response to a significant shift of the business from physical to online, some of which lingers, according to the beauty group.

To maintain an additional liquidity buffer, Richemont halved its dividend and proposes a shareholder loyalty program where it will issue warrants to investors that can be converted into newly created shares at a later date. Business activity has also come to a standstill. However, every crisis offers opportunities and there is enough money to invest in the sector. We expect deal-making activities to resume in the last quarter of the year.

Sector valuation

Pierre Mallevays is the founder and managing partner of Savigny Partners LLP, a mergers and acquisitions consultancy focused on luxury brands and retail.