Fuelled by excess savings accumulated during COVID-19 restrictions by consumers, the “revenge spending” phenomenon, and progressive border reopening policies from Asia, the luxury industry experienced a surge in sales that translated into market outperformance.

From the pandemic low into late 2021, this positive spread exceeded 100% for US companies and 50% for companies in France.

With a negative spread against the benchmark exceeding 30% in both the US and France on a 12-month horizon, can the industry’s momentum return?

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

In the wake of the pandemic, Governments worldwide deployed unprecedented fiscal measures to keep economies afloat, driving the money supply and inflation to historic levels.

The luxury industry capitalized on consumption trends by raising prices for unbothered prospects flushed with cash on all fronts (capital markets appreciation from speculation, cumulated excess savings).

As Federal bankers attempted to reverse course through monetary policies aimed at squashing rampant inflation, capital markets suffered steep declines, labor market loosened, and excess savings contracted with the most aggressive tightening cycle in decades.

As companies in the luxury industry failed to tailor their pricing strategy to macroeconomic dynamics, sales figures reflected a push by consumers demanding value commensurate with cost.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

The industry's reliance on China has become particularly apparent as the Chinese economy experiences a slowdown linked to the real estate crisis, weak consumption, and debt risk.

While the net income margin for the cyclical industry remained flat from a year prior, ending Q1 2024, it has shrunk by half for the luxury goods industry in the US.

With a double-digit growth in Q1, Hermes continues to defy the trend, outpacing the competition In Europe.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA