February 1, 2012

LVMH, Cartier, Chloe: Luxury Goods Are Rising Up Against The Euro

Dropping euro and Swiss franc currencies against the dollar may benefit the stock of European luxury goods companies. According to a CA Cheuvreux analyst, Thomas Mesmin, the industry's average earnings before interest and taxes may rise by 1.3% to 1.5% for every 1% decline in exchange rates.

Companies like LVMH and Richemont are among those with stocks that would benefit disproportionately from the currencies weakening. This is largely explained by a high proportion of revenues that are generated outside of Europe, while costs are mainly in euros, Swiss francs, or British pound. Richemont, a Swiss based luxury holdings company (owner of Cartier, Dunhill, Vacheron Constantin, Chloe, etc), may be the one that benefits from this currency change the most, since 65% of its sales are in non-European currencies, and its costs are in euro.

The euro crisis has benefitted other companies such as Salvatore Ferragamo and Swatch Group, by boosting their competitive level and increasing margins. If you're interested to know more, read this Bloomberg article.

Sourced from Bloomberg, images from various sources