Chart of the Week: Return on “Luxury” Retailing Outpaces Broad Market Threefold

May 7th, 2012 by

While most sectors of the stock market have seen an uneven advance, replete with many false starts and lots of volatility, since global stock markets hit a post-financial crisis low in the early spring of 2009, luxury retailers seem to continue to enjoy a very different kind of experience.

Since March 2009, the MSCI textiles, apparel and luxury index has generated total returns for investors of 153%, compared to 54% for the MSCI world index. Far from abating as stock markets in many corners of the world have advanced this year – including in the U.S. – that pattern has simply intensified, with the gap between them widening. So far this year, while the MSCI World Index has returned 8%, the luxury index has generated a total return, including dividends, of 22%. As can be seen in this week’s chart of the week, below, this is one group whose valuations now are above their 10-year average. While the MSCI World Index trades at an average of 11.8 times the I/B/E/S forward 12-month earnings forecast, below its 10-year average; the “luxury” index now trades at 16.7, above the 10-year average of 16.2.


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The number of millionaires worldwide has continued to grow, particularly in Asia and most notably in China. And those newly minted millionaires like to spend. Hermes International (HESAF.PK) last year announced its first dividend payment ever to shareholders after reporting a surge in sales of its Birkin handbags and its iconic silk scarves. While the stock, which now trades at about $351 a share, hasn’t had an uninterrupted ride to the top – its 52-week high is $393.77 – the current share price is more than double the $131.75 it fetched two years ago.

Whether as a result of continued spending by affluent consumers in the home market, or growing interest by the newly rich in China and Russia, luxury stocks remain leaders. One high-expectations company in this sector is Lululemon Athletic (LULU.O), renowned for its ability to convince women that they need multiple pairs of flattering yoga pants at $100 or so each. That company’s stock price is up 66.5% so far this year. Fossil, manufacturer of accessories, is ahead 62.8%; Gilda Active wear (GIL.N), an apparel maker whose fate is less tied to the high-spenders, takes the number three spot with a 37.7% return year to date. (For more on some of the risk factors associated with Gilda’s earnings, see this recent story on Alpha Now.) Luxottica (LUX.N), a maker of premium eyewear that recently won the right to manufacture Armani-branded products, is ahead 30.1% so far this year; Christian Dior (CHDRF.PK), which has just hired a new fashion director, is up 26.4%, while another iconic brand favored by Chinese consumers, Burberry Group (BBRYF.PK), is ahead 25.2%.

This trend remains intact across the retail universe, and has shown little sign of changing since markets began, thanks to the ongoing affluence of the top tier of consumers and the aspirational nature of these products. (Even if those with only a few hundred dollars to spend for a Mother’s Day gift choose to spend it at Tiffany’s rather than Macy’s, that will contribute to the bottom line of that luxury retailer.) That is one reason why, as reported in AlphaNow’s series of articles on same-store retailing trends, luxury retailers have consistently demonstrated the strongest performance.

 
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