Luxury Stocks Lose Favor as Confidence Holds
Comment of the Day

October 22 2013

Commentary by Eoin Treacy

Luxury Stocks Lose Favor as Confidence Holds

Thanks to the authors for this article from Bloomberg focusing on the US luxury market. Here is a section
That's why investors should monitor earnings from these retailers to see if there's further deterioration in consumption or if market-share losses are to blame for weaker management forecasts, Ghriskey said.

Coach is scheduled to release fiscal first-quarter results tomorrow. Ralph Lauren, Michael Kors, Nordstrom, Saks Inc. (SKS) and Tiffany are slated to announce earnings in November.

If these companies report another quarter of weakness, that could signal their core customers are struggling, Ghriskey said, adding this is one reason his firm doesn't currently hold any of these stocks. As more competitors try to sell to a base of consumers he doesn't see growing, it's creating an unfavorable environment for both margins and earnings.

The impact varies, however, as competitive dynamics mean there are the “haves and the have nots” in this industry, Yucius said. “The whole ship isn't sinking, it's a matter of which brand is winning the fashion trend of the moment.”

Eoin Treacy's view Luxury goods companies were among the leaders in recovering from the 2008 lows but have for the most part been rangebound for the last 18 months as prices caught up with valuations. This process of valuation contraction has been quite spotty with LVMH on an estimated P/E of 19.64 while Christian Dior is currently at 15.37. Both shares continue to range with an upward bias.

US luxury goods companies have tended to underperform. Ralph Lauren has returned to test the progression of higher reaction lows and will need to demonstrate a return to demand soon if the medium-term upward bias is to continue to be given the benefit of the doubt. Coach has lost out in the mid-tier sector to Michael Kors which remains in a relatively consistent uptrend. Nordstrom continues to hold a progression of higher reaction lows and is currently building support in the region of the 200-day MA.s

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