Next month, the Christmas lights will be switched on in Bond Street and Sloane Street, London’s upmarket shopping locations.
Passers-by will press their faces against the windows of the luxury goods boutiques and wonder whether to spoil themselves or their loved ones.
I will be there, eyeing the bling, but pondering – like many other investors at present – whether shares in these companies should be a Christmas present to myself.
In the 1990s, luxury brands were in the doldrums, but revived their fortunes through creativity and by winning over a new, younger clientele.
Using the same strategy, they are now trying to climb out of a similar crisis. Hopes that this turnaround is already underway sparked a £68billion rally in their share prices this month.
Kering, the £35billion owner of the much-troubled Gucci label, this week began to address its debt and other issues with the £3.5billion sale of its beauty division to L’Oreal.
Check me out: A model sports Burberry attire – the company recently rejoined the FTSE 100
Kering shares are up by 41 per cent since the start of the year. Also on the move is EssilorLuxottica, whose shares have reached an all-time high.
This is thanks to excitement over its RayBan smart glasses, powered by artificial intelligence (AI) and developed in partnership with Meta, the Facebook and WhatsApp giant.
Over the past six months, shares in LVMH, the sector’s £200billion behemoth, have recovered by 27 per cent to €617 (about £540).
The share price of Burberry, the iconic British fashion house, is 80 per cent higher than a year ago – but it is still a third below its level of three years ago, a reminder of the extent of the problems in this sector which were caused by global economic conditions, but also by brands’ own blunders.
In the wake of the pandemic, there was a spree of ‘revenge spending’ on luxury goods which inspired the major players to massively raise their prices.
But as HSBC analyst Erwan Rambourg observes, this was often not accompanied by better design or quality. Also younger, aspirational consumers on lean budgets were forgotten. These mistakes coincided with the cooling of the crucial Chinese market.
Despite the signs that the Chinese are once more lusting after European labels, there may still have been a more permanent shift away from ostentatious consumption. As Will Mcintosh-Whyte, of wealth manager Rathbones, warns: ‘This could mean structurally lower growth for the sector.’
Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund, also counsels caution, saying: ‘While the worst of the drop in demand seems to be over, there are no clear indications that the sector is in recovery yet.’
LVMH and the other luxury brands are said to be Europe’s equivalent of America’s globally famous tech titans – Amazon, Apple and the rest. But while some argue that US tech may be overvalued, there can be no doubt that European luxury is trying to regain its lustre. Here are the stocks that could be on your Christmas shopping list.
LVMH
Between January and June this year, shares in LVMH – whose ‘houses’ include Dior, Louis Vuitton, Sephora, Tag Heuer and Tiffany – slumped by 29 per cent, reflecting the sector’s woes. But the stock has been upgraded to a ‘buy’ by analysts at Deutsche and Morgan Stanley following third-quarter sales figures that showed shoppers are regaining their taste for luxury.
Mcintosh-Whyte says that LVMH has been hiring creative directors and refurbishing stores to produce the buzz, citing the Shanghai Louis Vuitton shop. This eye-catching edifice is shaped like a ship, the upper storeys of which are made to look like heritage Louis Vuitton cabin trunks.
I kept my pledge made in this column in July to take a flutter on LVMH, France’s largest listed company, on the basis that the 76-year old chief executive Bernard Arnault would do his utmost to reverse decline before his retirement. He will hang up his Berluti (another LVMH house) bespoke boots at age 85.
I am not selling given the group’s potential, as summed up by Sam Keen of wealth manager Atomos: ‘LVMH’s scale coupled with its headline brands should give the business a leg up, relative to peers, when headwinds reverse.’
BURBERRY
Burberry rejoined the FTSE 100 a month ago in a move that underlined its recovery, and analysts continue to be optimistic about its prospects.
The company is wooing a 20-something clientele with more affordable items, while also emphasising its Britishness.
Stars such as Olivia Colman and Cara Delevingne are modelling outerwear showcasing its elegance and practicality.
Investors in the Finsbury Income & Growth trust – where Burberry is a top ten holding – will be gratified by the company’s progress, rather like me.
I bought a small stake in July last year as part of a broader foray into British stocks.
Analysts are equally split as to whether Burberry is a ‘buy’ or a ‘hold’ at its 1296.5p price. But Deutsche thinks this company has the power to ‘reignite the desire’ of customers and has set a target price of 1,500p.
ESSILOR LUXOTTICA
The enthusiasm surrounding this brand arises from the rumours that it may acquire the late Giorgio Armani’s empire – his will also cited L’Oreal and LVMH as potential purchasers.
But Barclays forecasts that smart glasses – which can take photos, carry out searches and play music – could be the most disruptive innovation since smartphones.
Stefano Grassi, the chief financial officer, says these glasses ‘will materially replace most of the functionality that today we have embedded into our phones’.
You may be avoiding anything AI-related right now in light of those warnings about US tech stocks. But most analysts are bullish about the outlook for Paris-listed EssilorLuxottica, which is offering the newness essential for a solidly based recovery.
HERMES
Shares in Hermes, France’s second-largest company, are down by 5 per cent this year – probably because investors are preferring luxury turnaround stories.
But analysts are optimistic about Hermes’ prospects. Eight of those who follow this 188-year old business rate the shares a ‘hold’ at the current €2,194, or £1,922, while seven consider it a ‘buy’.
This week’s third-quarter results, which showed a 10 per cent bounce in sales, have reinforced this view. It owes the success to the continued clamour for its
Birkin and Kelly bags. Demand is coming from the US – and from China.
The starter price for a Birkin bag is a hefty £10,000, but these artisan-made accessories seem to more than hold their value.
KERING
The majority of the analysts that follow Kering rate the shares a ‘hold’. The share price is €331, about £289, highlighting the uncertainty surrounding the turnaround at its key Gucci division.
As was reported this week, Gucci’s third quarter sales were 14 per cent lower than at the same period last year, although Kering’s chief financial officer, Armelle Poulou, said that there was ‘substantial sequential improvement’ in China.
Much depends on the reception for the label’s ‘bold and sexy’ collection from new creative director ‘Demna’, which aims to take Gucci from bland to funky.
Driving change at this £35billion French company is Luca de Meo, the former boss of car-maker Renault, who will probably have to sell more divisions to bolster the balance sheet.
But De Meo’s transformation of loss-making Renault would seem to make Kering a reasonable gamble for anyone looking for an adventure in a brand trying to bring sexy back.
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