Richemont, Burberry Signal That Luxury Market Is Thriving

(Bloomberg) -- Richemont had its fastest holiday-season sales growth in at least a decade and Burberry Group Plc forecast 35% earnings growth this year, signaling that the luxury-goods market is thriving again.  

Richemont said revenue climbed 32% at constant currencies in the last quarter, exceeding pre-pandemic levels as consumers splurged on Cartier jewels and Chloe fashion. Burberry has a bit further to go to recover to 2019 levels, though it said sales accelerated as the British maker of trench coats sold more products at full prices. 

Demand for jewelry, timepieces and fashion items is rebounding as vaccination rates across the world increase and people socialize and travel more. Prada SpA said Tuesday that its sales recovered to above levels seen before the coronavirus pandemic. 

Richemont shares rose as much as 9.3%, while Burberry gained as much as 6.5%.

Jewelry was Richemont’s best-performing unit, though fashion, accessories and leather goods have also been improving, a sign that turnaround efforts have been gaining traction at brands like Chloe and Montblanc. 

While the Swiss company’s Asia-Pacific sales beat estimates, investors may be surprised that the increase in China, a key market for luxury, was only 7%. Revenue in that market had soared 80% in the year-earlier period. 

China was the first market to recover in the luxury-goods industry, so it’s a bit of a calendar effect. However, recent lockdowns as the country pursues its zero-Covid strategy are set to weigh on consumption.

Transition Period

Burberry’s comparable store sales grew 7% in the three months through Christmas, beating analysts’ estimates. Outerwear and leather goods performed well as the brand said it attracted younger consumers. The U.K. company is undergoing a transition period with incoming Chief Executive Officer Jonathan Akeroyd set to take the helm on April 1. 

Akeroyd’s predecessor, Marco Gobbetti, sought to make Burberry more premium by reducing third-party distribution as well as discounts in order to sell its Olympia handbags and tartan scarves at full prices. Those sales continued to grow at double-digit percentage from two years ago.

Chief Financial Officer Julie Brown said the Americas region had a “standout” performance, driven by male customers, demand for sneakers and outerwear. Full-price comparable sales in that area were 72% higher than the period in 2019.

Burberry said comparable stores sales in Asia Pacific were flat during the period compared to two years ago. 

What Bloomberg Intelligence Says:

The quality of Burberry’s fuller-price 3Q sales -- enabling a sizable profit beat in fiscal 2022 vs. consensus -- demonstrates the strategy is working to reduce discounts and build luxury-brand equity -- despite revenue still being below pre-pandemic levels. Guidance for adjusted operating-profit growth of 35% at constant rates compares with consensus’ 19% on a reported basis.

-- Deborah Aitken, BI luxury-goods analyst

Consensus-Busting Burberry Profit Is Fuller-Price Coup: React

©2022 Bloomberg L.P.