Quality: Are China expectations a luxury for valuations?

china luxury yachts

Despite a very patchy year for China macro news it is striking that luxury stock share prices are taking big hits on any disappointment. The latest victims are Remy Cointreau and Hugo Boss citing specific China worries. The Guardian gives some detail…

Slowing growth in China will hit profits at French spirits group Remy Cointreau and German fashion house Hugo Boss, the two companies warned.

Shares in Remy Cointreau fell 9% on Tuesday morning after it said flagging sales in the world’s second largest economy would trigger a double-digit decline in full-year operating profit.

The producer of champagne and premium cognac and other spirits said operating profit fell 6.2% to €132.7m (£111m) in the six months to 30 September, while sales fell 6.3% to €558m.

“Although the group maintained a strong momentum in the US and Europe, this did not offset the slowdown recorded in China,” the company said.

Now check out luxury bellwether LVMH and its 5 year share price chart via Bloomberg:

It has under-performed over the past year but the stock is still close to highs and on an earnings multiple of 20x. One wonders whether earnings expectations might have to be reduced further? And then we saw this interesting chart from The Reformed Broker and Morgan Stanley highlighting how analysts forecasts at the start of a calendar year typically halve over the following 12 month period! Bring on Santa….

Might be worth checking out earnings forecasts for 2014 in the luxury sector….and given today’s price action you can assume the market is not that forgiving.

Quality Franchises

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