|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
Betting on Luxury
Posted by: Federico Zaldua (IP Logged)
Date: September 6, 2013 02:21PM
I have always liked the luxury goods market. The reason is simple: The sector's growth is tied to wealth creation in emerging markets. Countries like Brazil and China are generating a huge amount of wealthy families every year. Consolidation is also helping investors in the luxury goods space. Huge conglomerates such as LVMH Moet Hennessy Louis Vuitton (OTH:LVMUY) are constantly buying highly appreciated smaller companies such as Loro Piana, the Milan-based cashmere company which was bought for 2.7 billion euros a few months ago. Here I will take a look at two independent luxury goods companies that I believe could constitute M&A targets going forward.
Shinier Than Diamonds[/size]
Tiffany & Co (TIF), which is a part of Daniel Loeb's portfolio (Third Point LLC), is a perfect M&A candidate for bigger luxury groups or diversified conglomerates that invest only in great businesses, such as Buffett's Berkshire Hathaway (BRK.A)(BRK.B). I believe Tiffany's second quarter results clearly support the thesis that the company will start growing year-over-year earnings at rates well above 10%. The reason is the upcoming sales shift towards higher-margin geographies such as non-Japan Asia and Europe which are growing same-store sales (the most significant metric in the industry) at year-over-year rates of 13% and 7%, respectively. In addition, a more favorable commodity environment should also help margins going forward.
As a matter of fact, according to Credit Suisse's analysts, in less than five years, Tiffany & Co could boost its margins by as much as 250 basis points up to 21%. With a very low net debt to EBITDA ratio (0.6 times), trading at 24 times earnings and with a market capitalization below $10 billion, I think Tiffany & Co is a wonderful M&A candidate. I would play along Daniel Loeb on this trade.
Still a compelling luxury goods story[/size]
Operationally, Coach (COH), which is owned by Steve Mandel and James Barrow, has been having some trouble. Here are the company's top three ugly facts: (A)The North America business is losing market share, (B) The company is having problems at maintaining its margin profile and (C) Another round of executives has left the company. That said, the company's price is more than reflecting the aforementioned facts and the brand continues to expand rapidly in high-margin emerging markets such as China. As a matter of fact, Coach's business in China continues to grow same-store-sales at double digits while total sales growth remains at 35% year over year. According to Coach's management, “We continue to see ample growth opportunities for the company's China business, and expect long-term revenue from the region approaching $1 billion.”
Even when North American same-store-sales are decreasing at a rate of 1.7% year over year, I consider that the shares already reflect the problems the company is going through. Being down by more than 4% year to date, Coach (which is debt free) trades at just 14 times earnings, well below the sector's average.
As we all know, “Price is what you pay and value is what you get.” I think both Tiffany and Coach are fairly priced and both deserve a bet at the current valuation level. While Tiffany, a New York symbol of good taste, is performing amazingly well, Coach is going through some serious trouble at its North America business. Nevertheless, those troubles are more than reflected into the company's price. Go long.
Re: Betting on Luxury
Posted by: jacob.chang11@google (IP Logged)
Date: October 22, 2013 03:27PM
I must agree with you, because the sales growth in asia specifically in China is growing way to much because of the economy growth of them _[goo.gl] gives quite interesting insides about the Tiffany (the best company in luxury products) and its other competitors, and their sales growth.
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.