Three Luxury Companies That Can Bring You Closer to the Good Life

A lot of consumers are hurting right now, but you wouldn't know that looking at the earnings of major luxury companies.

Many luxury companies like LVMH Moet Hennessey Louis Vuitton SA (PINK: LVMHF), Burberry Group PLC (PINK: BURBY), Hermes International SCA (PINK: HESAF), and Coach Inc. (NYSE: COH) had a stronger-than-expected 2011 campaign.

Better still, they're set to expand on that success this year.

U.S. sales are regaining momentum and emerging markets – led by China – have been an outright boon for luxury companies.

Although you may not have realized it, China is now the world's second-largest market for luxury goods, behind Japan. And it could become the largest as soon as this year.

China's National Statistics Bureau says that there are now more people living in the country's towns and cities than in the countryside – making China a predominantly urban nation for the first time in history.

Worker pay is rapidly rising in China, with officially mandated base wage minimums up an average of 22% in 2011. And a new class of workers as well as a wealthy elite are driving luxury sales globally.

Two good examples of this are Burberry and Compagnie Financiere Richemont (PINK: CFRUY).

Luxuriating in Success

Burberry, the U.K's largest luxury-goods maker, reported third-quarter sales that beat analysts' estimates, and said it sees no reason to change full-year forecasts even in light of a "challenging" economy.

Burberry's revenue in the three months ended Dec. 31 climbed 22% to $882 million (574 million pounds). Asia-Pacific sales climbed 36%, while sales in Europe surged 20%. Sales rose 4% in the Americas and 31% in the rest of the world.

The company said it can weather any fallout from Europe's sovereign-debt crisis because Chinese consumers will help offset losses.

Chinese customers alone account for 10% of Burberry's total sales.

Swiss-based luxury goods group Compagnie Financiere Richemont also has benefited from China.
Richemont's sales in the December quarter rose 24% at actual and constant exchange rates to $3.4 billion (2.619 billion euros).

"The growth in sales reflects growing demand in Asia-Pacific, our Maisons' (international brands) creativity and the lasting appeal of our products," said Executive Chairman and Group CEO, Johann Rupert.

The Asia-Pacific region reported growth above the group average, reflecting very strong demand in Hong Kong and mainland China in particular, the company said.

And that's not all. Chinese tourists buying Cartier jewelery during visits to Paris, Rome, and Zurich helped spur growth in Europe, Richemont said.

"The number of Chinese tourists is growing and growing," said Bernard Fornas, chief executive of Richemont's Cartier brand. "I don't know how far down [Europe will go], [whether it will be] stable or [whether] Europe will go up, but the Chinese tourists will cushion the landing in case things get worse."

Chinese consumers, who spend an average $2,165 (1,700 euros) on luxury shopping when traveling in Europe, have helped offset weakening local demand, according to CA Cheuvreux analyst Thomas Mesmin.

Still, Coach Inc. (NYSE: COH) proved last quarter that the Chinese market is a luxury some companies can do without.

The high-end handbag maker saw its fiscal second-quarter net income rise nearly 15% to $347.5 million, beating expectations. And most of that increase was attributable to the company's home market.

"We were especially pleased with our ongoing strength in North America during the holiday season," said Chief Executive Officer Lew Frankfort. He added that results suggested the company gained market share in the U.S. during the period.

Revenue in stores open at least one year rose 8.8% in North America during the October-December quarter, Coach said.

These three companies are good examples of luxury companies that excelled at navigating a treacherous economy.

Of course, not every luxury company has enjoyed as much success.

Gold vs. Brass

For example, one company investors ought to avoid is Tiffany & Co. (NYSE: TIF).

Tiffany & Co. suffered its worst decline in more than three years after it reduced its annual earnings forecast on Jan. 10. The company was unable to find success in either Europe or the United States, and failed to capitalize on rising Asia demand the way Burberry and Richemont have.

Tiffany worldwide sales in November and December increased about 7% to $952 million. However, that was slower than the 11% gain the company recorded in the same period a year earlier.

Investment analysts at Oppenheimer Holdings Inc. (NYSE: OPY) last week cut their price target on shares of Tiffany to $75.00 and Sterne Agee analysts cut their price target to $77.00.

Zacks Investment Research reiterated a "neutral" rating on Tiffany & Co. on Jan. 18, and now has a $63.00 price target on the stock.

News and Related Story Links:

• Money Morning:
  Pay to Play: What China's Rising Wages Mean for Investors
• Money Morning:
  Luxury Brands Are Back In Style as America's Wealthy Return to Their Wears
  

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