11 Oct, 2017
Top 10 luxury companies
The world’s Top 10 luxury goods companies are the same since 2014, with little acquisition activity by the leading companies during the year. The major M&A event — the €50 billion merger of Italy’s Luxottica and France’s Essilor — was announced in January 2017. The top three companies, LVMH, Richemont and Estée Lauder, retained their leading positions.
The Top 10 saw a 7.6 percentage point jump in reported sales growth to 9.6 per cent, although much of this was due to changes in currency exchange rates. The volatility in currencies had significantly different impacts on Top 10 companies, depending on their reporting currency and their geographic spread of business around the world. Companies reporting in euros (LVMH, Richemont, Luxottica, Kering and L’Oréal Luxe) saw sales growth higher by 7 to 11 percentage points, when compared with sales growth at constant currency. Currency exchange rate movements were unfavorable for the other Top 10 companies: US-based Estée Lauder, Ralph Lauren and PVH suffered from the strength of the dollar in international sales, and softness in retail and tourist sales in their domestic market. Swatch was hit by the January 2015 decision to unpeg the Swiss franc/euro fixed exchange rate, resulting in a «massively overvalued Swiss franc» according to Swatch. Their 3 per cent decline in sales in Swiss francs would have been growth of 10.3 per cent if reported in euros. Hong Kong-based Chow Tai Fook’s continued sales decline was also exacerbated by unfavorable currency exchange rates.
L’Oréal Luxe and LVMH were two of only eight luxury goods 'high achievers' in the Top 100, with double-digit growth in luxury goods sales, and double-digit profit margins. Sales at LVMH, Richemont, Estée Lauder, Luxottica, Kering and L’Oréal Luxe all grew at a faster rate than in 2014. Leading luxury goods company LVMH, which accounts for over 10 per cent of total luxury goods sales by the Top 100 companies, delivered record revenues and operating profit in 2015: its luxury goods sales were up 6 per cent at constant exchange rates and net profit margin was similar to last year (excluding the exceptional profit of €2.6 billion from an enforced distribution of Hermès shares in 2014).
Richemont’s sales dropped slightly, at constant exchange rates, as its Swiss-based luxury watch companies felt the impact of the Swiss franc revaluation on its international sales, but it achieved the highest net profit margin in the Top 10. This was partly due to a non-cash gain in October 2015 from the merger of Net-A-Porter Group with Yoox Group.
Estée Lauder’s Strategic Modernization Initiative started to bear fruit, as it returned to sales growth while maintaining net profit margin. Its growth at constant exchange rates, 7 per cent, was the highest in the Top 10. Investments in the luxury end of its portfolio, including the acquisition of prestige fragrance brand 'By Kilian' in February 2016, helped drive strong growth in make-up and luxury fragrance. It also passed the US$1 billion milestone for online sales through both company and retailer e- and m-commerce platforms.
Luxottica saw growth in all regions and distribution channels, and improved net profit margin slightly. The balanced brand portfolio of Kering’s Luxury Division, plus favourable currency effects, helped it to achieve higher growth than any other Top 10 company. Luxury goods sales were up nearly 12 percentage points, supported by momentum in the directly-operated store network and high tourist numbers in Western Europe and Japan, plus the full-year consolidation of its Ulysse Nardin acquisition in 2014. Net profit margin was also up, although this hid a big drop in consolidated net income from continuing operations. Kering started 2015 by finalising the sale of the last Redcats companies, and finished it by completing the sale of luxury shoemaker Sergio Rossi.
Swatch maintained its long-term strategy of favoring a defensive price adjustment policy over short-term profit making, despite the impact of the Swiss franc revaluation on sales, which created a marked distortion of the international pricing structure. It delivered the eighth-highest net profit margin among the Top 100 companies, losing only three percentage points to 13.2 per cent.
L’Oréal Luxe was the best performer in the Top 10. Like its competitor Estée Lauder, it saw strong growth in make-up and fragrances, as well as e-commerce. It also achieved an estimated double-digit net profit margin, at a similar level to 2014.
US-based fashion companies Ralph Lauren and PVH both saw reported sales fall by 2 to3 per cent. Sales at constant exchange rates were higher than in FY2014, despite soft demand for apparel in the US, their largest market, and a decline in foreign tourist traffic. PVH exited its Izod retail business in 2015, and in April 2016 concluded the acquisition of the 55 per cent interest in TH Asia Ltd, its joint venture for Tommy Hilfiger in China that it did not already own. This has enabled PVH to operate directly in Asia, its fastest growing market. Ralph Lauren’s net profit margin dropped nearly four percentage points, whereas PVH’s profit margin continued to improve, as charges associated with the integration of the 2013 Warnaco acquisition and pension costs both decreased.
Asian jeweller Chow Tai Fook’s sales continued to drop back to levels last seen in 2012, due to the strength of the US dollar, a drop in tourist visits to Hong Kong/Macau (partly caused by a change to the 'Individual Visiting Scheme' in Mainland China) and continuing economic slowdown in the region.
Looking at the Top 10 as a group, their composite compound annual growth rate (CAGR) in luxury goods sales in the period 2013−15 was up 1.7 percentage points, at 6.8 per cent. This was higher than the 5.2 per cent CAGR for the Top 100 companies. Although the Top 10 composite net profit margin dropped 1.8 percentage points, to 11.4 per cent, this was due to the effect of LVMH’s exceptional profit from the distribution of Hermès shares in 2014. Excluding this effect, the composite net profit margin improved slightly. The leading luxury goods companies continued to outperform the Top 100, contributing nearly two-thirds of the total Top 100 profits. All Top 10 companies were profitable, and half achieved double-digit net profit margins.
2018 fashion events: Top Bridal Fashion Shows, Top Specialized Lingerie Trade Shows, A Calendar of Italian Fashion Weeks, Events and Trade Fairs, 2018 Fashion Calendar in UK, The Key Fashion Events in Spain, A Calendar of Fashion Weeks, Events and Trade Fairs in Germany, Nearest Fashion Shows in Paris
Our suggestions: 20 Must-Read Books
Some strategies of raising capital: Bringing Your Company Public, Exploring Alternative Capital-Raising Strategies, Refinancing and Minority Equity as Partial Exit Strategies, 5 Alternatives To IPOs, How to Raise Capital For a Company in Financial Troubles, 7 Private Equity Strategies, Why Successful Business Owners Sell Out, The Six Types of Successful Acquisitions, Race to Become a Global Player, Refinancing and Minority Equity as Partial Exit Strategies, Guide To Equity Release Or «Cash-Out»
13 Jan, 2020
A wave of U. S. «super mega» mergers in the U. S., each worth more than $10 billion, drove corporate deal-making to its fourth strongest year on record in 2019 despite the economic jitters that roiled global...