Richemont Purchases Net-A-Porter for $341 Million

Natalie Massanet

(Photo: The Wall Street Journal/Reuters)

WWD reports Richemont has purchased the remaining 67 percent of Net-a-Porter.com, becoming the majority shareholder of the high fashion e-tailer, and thus increasing its presence in the world of e-commerce. 

The Swiss luxury goods group, which already owned 33 percent of Net-a-Porter, purchased the company from a group of private shareholders for approximately 225 million pounds, or $341 million  The Wall Street Journal reports. The deal values the internet business at 350 million pounds, or $532 million. Natalie Massanet, who founded Net-a-Porter, is stand to gain 50 million pounds, or $76 million from the sale of her company, and will stay on as executive chairman, according to WWD. 

For years, luxury companies have been apprehensive about entering e-commerce, siting concerns that easy access to luxury brands would ruin their prestigious image, and turnoff their high-end clientele. Then along came Ms. Massanet, who proved that with the right combo of retail and editorial, people are willing to purchase expensive goods online. This "luxury marriage" will allow Richemont to benefit from Net-a-Porter's e-tailing innovation as they venture into e-commerce with their Cartier brand, while Net-a-Porter will be able to tap into the emerging luxury market in Asia via Richemont's commercial presence in the region.

HR Quarterly Round-Up: Richemont, Burberry and Coach, Inc.

(Photo: Pascal Lauener/Reuters)

 

Richemont Sales Bolster Revival Hopes (FT): Richemont, the world's second-biggest luxury goods group, yesterday reinforced signs of a recovery in demand for expensive watches, jewellery and accessories with Christmas sales well ahead of expectations.

Burberry sales rise stronger-than-forecast 15% (Market Watch): U.K. luxury goods retailer Burberry reported a 15% rise in sales for its fiscal third quarter, sailing past analyst estimates, and the company said it now expects pretax profit for the year will reach the top end of market expectations.

Coach Profit Rises 11% on Holiday Sales (WSJ): Coach Inc.'s fiscal second-quarter earnings rose 11%, with a boost from holiday sales that improved over 2008's weak holiday season. Results beat Wall Street's expectations.

PPR Falls in Paris on Missed Sales Estimates, Gucci’s Decline

PPR Falls in Paris on Missed Sales Estimates, Gucci’s Decline

By Ladka Bauerova

Oct. 21 (Bloomberg) -- PPR SA, the owner of the Gucci brand, fell the most since July in Paris trading after reporting revenue that missed analysts’ estimates, hurt by declining luxury-goods orders in the U.S. and western Europe.

Sales dropped 7.6 percent to 4.56 billion euros ($6.8 billion) from 4.94 billion euros a year earlier, Paris-based PPR said yesterday after stock markets closed, below the 4.63 billion-euro median estimate of three analysts surveyed by Bloomberg. At Gucci Group, which accounts for almost a fifth of revenue, the sales drop accelerated to 6.4 percent.

Chief Financial Officer Jean-Francois Palus blamed the shortfall on a “low point” in demand from third-party luxury retailers such as U.S. and western European department stores. Gucci’s figures were worse than those posted earlier this week by PPR’s largest rival, LVMH Moet Hennessy Louis Vuitton SA, whose Louis Vuitton brand posted growth on “exceptional” demand for its handbags in China.

“The market may have expected a positive surprise” for PPR after Vuitton’s figures, Citi analyst Thomas Chauvet said in a note this morning, calling the figures “a bit light.”

PPR shares fell as much as 6 percent, the most since July 2, and were down 3.49 euros, or 4.1 percent, to 81.68 euros at 10:38 a.m. in Paris. The stock has gained 75 percent this year, outperforming LVMH, which has risen 52 percent.

Gucci Group’s decline was paced by a 3.2 percent drop at the core Gucci brand. Excluding currency moves, Gucci brand stores open at least a year saw their sales decline 8 percent. Palus said a lull in tourism by rich shoppers, especially from Russia and the Middle East, hurt Gucci Group outlets in Monte Carlo, Cannes and Paris.

Analysts including Luca Solca of Sanford C. Bernstein said PPR sales may rebound in the fourth quarter, as wholesale customers are likely to replenish their inventories.

(SOURCE: Bloomberg.com)

LVMH Beats Estimates on Vuitton, Says Cognac Sales Picking Up

LVMH Beats Estimates on Vuitton, Says Cognac Sales Picking Up

By Ladka Bauerova

Oct. 19 (Bloomberg) -- LVMH Moet Hennessy Louis Vuitton SA, the largest luxury-goods maker, reported third-quarter revenue that beat analysts’ estimates after “exceptional” demand for Vuitton bags in China, and said cognac demand is improving.

Sales slipped to 4.14 billion euros ($6.2 billion) from 4.16 billion euros a year earlier, the Paris-based company said today after markets closed. That surpassed the 4.07 billion-euro median estimate of five analysts surveyed by Bloomberg News.

Sales of Louis Vuitton apparel and accessories posted “double-digit” growth, LVMH said. Demand for cognac “significantly” improved as wholesalers in the U.S. began to replenish their inventories during the quarter, the company said, echoing the outlook from smaller liquor rival Remy Cointreau SA released last week.

“I can’t say the crisis is over yet, but we are beginning to see some light at the end of the tunnel,” Chief Financial Officer Jean-Jacques Guiony said during a conference call. “Louis Vuitton’s performance in China was exceptional.”

LVMH shares rose 2.45 euros, or 3.4 percent, to 74.90 euros in Paris trading today, the highest in more than a year. They have rallied 57 percent in 2009 after tumbling 42 percent last year, when Lehman Brothers Holdings Inc.’s bankruptcy spooked luxury-goods buyers.

Revenue at the company’s fashion and leather goods division gained 5.3 percent, fueled by Vuitton sales. Wholesale sales of other LVMH fashion brands including DKNY and Fendi had a “double-digit” decline in the third quarter, though they improved in September, Guiony said.

Revenue at LVMH’s wines and spirits division, which makes Veuve Clicquot champagne and Hennessy cognac, fell 8.6 percent in the quarter as drinkers in the U.S. and Russia cut back. Unlike cognac, the champagne market “remains difficult” as some consumers switch from LVMH’s expensive vintages to cheaper brands, Guiony said.

Watch and jewelry sales, which make up about 5 percent of total revenue, dropped 22 percent, while perfumes and cosmetics slid 4.6 percent. The retail unit, which includes the Sephora cosmetics chain and Duty Free Shops, climbed 2.5 percent.

(SOURCE: Bloomberg.com)

Coach Profit Drops 32% For The Quarter

Like the majority of the luxury sector, Coach Inc. felt the effects of consumers' continued preference for necessities over discretionary purchases.

The company reported fourth quarter earnings fell 32% to $146M, or $0.45 per share, vs. $214M, or $0.61 per share in the fiscal fourth quarter of 2008. Income for the fiscal year 2009 was $623M, a 20% drop from earnings of $783M for fiscal year 2008. Earnings per share were $1.91 vs. $2.17.

Excluding one-time items, earnings per share were $0.43, meeting analysts expectations according to Thomas Reuters.

Fourth quarter sales dropped less than 1% to $778M from $782M in the previous year. Total Sales for the year were up 2% to $3.23B. Coach retail store sales, which account for 85% of its business, were up 3%. The biggest sales decline was in Coach's North American stores, where retail comp. sales slid 6.1% for the quarter and 6.8% for the year. Department store sales dropped 21% for the quarter and 19% for the year.

In response to sales declines, the company has increased their offering of handbags in the $200-$300 range to 50%. In an interview with The Wall Street Journal, Coach, Inc. Chairman and CEO, Lew Frankfort said the following:

"We want to be in that sweet spot where we believe the market will settle," Mr. Frankfort said. "It's our intention for the indefinite future to maintain pricing at [these] levels."

The new pricing strategy seems to be working. In a conference call, Mr. Frankfort said that the percentage of handbag sales in its North American stores has increased to 55% compared to 50% a year ago. The introduction of the new Poppy line, which has an average handbag price of $260, has improved retail sales for the month of July. The line, which is marketed towards Coach's younger consumer, is selling at a rate two to three times that of other collections.

Coach, Inc.'s Chief Financial Officer, Mike Devine said that fiscal 2010 will be an "investment year" for the company, with plans to open 20 retail stores and 6 outlets in North America, 10 stores in Japan and 15 new locations in China, where sales have been strong.

Included in the expansion is the creation of the Reed Krakoff label. Last month, Haute Retail mentioned that this new brand, revolving around Coach's creative director, was in the pipeline. The label will be a "global brand" separate from Coach that will include women's ready-to-wear, accessories, handbags, footwear and jewelry. "We believe that this concept will serve to define the new American luxury and engage a different customer who is looking for exclusivity and limited distribution", Mr. Frankfort said of the new label.

The Reed Krakoff label will debut in Fall 2010, with a limited number of stores in the U.S., Japan and Hong Kong.

Reuters reports that shares fell 7.2% due to investor worry about Coach's increased expansion of the brand.

"With increased investment spending in China, sales volatility here at home, lower-price points within the overall assortment and increased factory channel sales mix, it appears returns will take a hit," says Wall Street Strategies analyst Brian Sozzi. "The gross margin really missed consensus by a wide margin." (Source: Reuters)

But some analysts think the market overreacted.

Needham & CO analyst Christine Chen said she thought the market was reacting to the worse same-store sales number, but they were looking at the wrong thing. "They said July trends have improved due to Poppy," she said. "Investors should be a little more forward-looking." (Source: Reuters)

Coach shares dropped $0.38 to $28.05 at the close of the market.

Disclosure: Haute Retail has positions in Coach, Inc.

May Same-Store Sales Roundup

Major Memorial Day sales and a jump in U.S. consumer confidence in May were not enough to fend off another month of soft retail same-store sales. U.S. same-store sales for the month fell 4.8% according to Thomson Reuter vs. their estimate of a 4.1% decrease.

A 14-yr high in consumer savings and a curb on spending, both due to unemployment concerns and a troubled housing market, have negatively impacted retail sales, particularly luxury retail. Discretionary spending, which drives the luxury sector, just isn't there. Instead, consumers are focusing more on necessities such as food, gas and affordable clothing:

Upscale chains posted some of the worst May sales at stores open at least a year, or same-store sales."The high end continues to struggle, those in the discretionary spend segment are really continuing to get clocked," said Ken Perkins, president of Retail Metrics. (Source: Reuters)

Here's the apparel retail May same-store sales roundup:

Macy's same-store sales for May were down 9.1%, coming just under analysts' estimates of a 9.3% decline. The company says that sales were consistent with management's expectations.

Comp. sales dropped 12% for Dillard's in May, above projected declines of 8% by wall street.

Limited Brands met analysts' estimates and company expectations, posting a 7% decline in same-store sales in May. Amie Preston, V.P. Investor Relations, says the company projects comp. sales decline in the high single digits for June.

It was another weak month for high-end/luxury apparel sector. Abercrombie & Fitch reported comp. sales fell 28% for May, which was higher than analysts' estimates of a 24.2% drop.

Nordstrom's May comp. sales slipped 13.1%, slightly above the 12.7% decrease analysts predicted. The company experienced strength in Women's Coats and Dresses, Individualist, Savvy and Narrative merchandise categories.

Saks continues to suffer, posting same-store sales that plummeted 26.6%, way above analysts' predictions of 14.2%. The positive impact of a clearance event shift from April to May was offset by the designer sale event shift from May to June. Both event shifts caused a negative impact on May comp. sales.

Neiman Marcus May same-store sales declines 23.3%. Weakness was experienced across all geographies and merchandise categories.

Tiffany Stock Surges Despite 4Q Loss

Photo: Reuters/Fred Prouser

Tiffany & Co. shares rose 15.52%, or $3.14, to close at $23.37 after the company reported fourth-quarter profit that beat Wall St. estimates. This was the company's biggest gain in five months.

Excluding one-time charges, such as staffing reductions, earnings per share (EPS) was $0.85, beating average analysts' estimates of 78 cents per share according to Reuters Estimates.

Taking aggressive steps to lower costs was a contributing factor to the company beating expectations. Tiffany announced that it will close all 16 Iridesse pearl jewelry stores, which have operated at a loss since opening in 2004. They have offered early-retirement packages to 800 U.S. of its employees, with 600 accepting the package. The company says both actions will reduce it's workforce by 10%, creating a savings of $60 million for the year. In other cost saving measures, the retailer has suspended its share repurchase program, and lowered management incentive compensation.

However, the company is quick to say that the outlook is dim.

"We have not yet seen signs of an upturn in our business with worldwide sales in the quarter-to-date declining more than 20%, which is in-line with our expectation", says Michael J. Kowalski, chairman and chief executive officer.

Tiffany forecasts a decline in worldwide sales of 11%, and earnings of $1.50 - $1.60 per share for the fiscal year ending in January 2010.

For the fiscal fourth-quarter, which ended January 31, net income dropped a little over 75% to $31.1 million, or $0.25 per share compared to the previous year's $127.4 million, or $0.96 per share. Earnings for the full year were down 32%, $220.0 million, or $1.74 per share, vs. $323.5 million, or $2.34 per share from the previous year. Sales were in line with company expectations.

Fourth-quarter worldwide net sales plummeted 20% to $841.2 million, with sales declines in the Americas region having the biggest impact.

Sales in the Americas took the biggest hit out of the company's three regions. Fourth-quarter sales of $458.9 million were down 29%, and fiscal year sales were down 10% at $1.59 billion. U.S. same-store sales dropped 33% in the fourth quarter and 16% for the year. Despite being a major tourist attraction, sales at the New York flagship store were down 34% and 9%.

In the U.S., there were declines in every price range, however the declines were "somewhat smaller" in sales below $500 and larger in sales about $50,000, said Mark Aron, Tiffany's vice-president of investor relations.

In the Asia-Pacific region, sales declined 3% to $279.7 million in the fourth quarter, while sales increased 8% to $922 million for the year. In Europe, fourth quarter sales where down 2% at $95.3 million and up 17% to $284.6 million for the year.

Net inventories increased 17% to $1.6 billion due to lower than expect sales towards the end of the year, particularly the holiday season, the opening of new stores and an increase in raw material inventories.

Despite low sales, the company has no plans to follow the current trend of discounting prices that their competitors have embraced. "We did and will continue with our full price philosophy in order to maintain appropriate margins and very importantly to maintain the integrity of the Tiffany and Company brand", said Tiffany CFO, Jim Fernandez.

I agree with this strategy. Tiffany & Co. isn't just a company, it's a strong, iconic brand that people will always be willing to pay full price for. Everyone wants the "blue box".

Even though the luxury sector is going through turbulent times, people still want high quality clothing and jewelry that is timeless. In this morning's conference call, the company noted that they experienced "strong sales" of Tiffany Charms and their Atlas 1837 and Somerset Collections. The new Tiffany Metro and Tiffany Keys collections have also shown promise, according to Mr. Aron. What do all of these collections have in common? Understated, classic and timeless luxury. If they stick with promoting these lines, they just might beat expectations in the first quarter.