Burberry Freak-out Puts Luxury Retailer Stocks on Sale
Burberry Group (BRK) recently rained on the “luxury goods are resilient” parade. The British fashion firm warned in mid September that same store sales were flat for the first 10 weeks of the quarter, the worst showing since 2008. Burberry attributed sluggish revenue to the fact that the 1% ‘round the globe -- especially China -- have seemingly taken to belt-tightening amid continuing economic sluggishness.
Faster than you can say tartan, Burberry stock was slammed, falling 25% (and staying there) during a stretch of a few weeks where the S&P 500 was up 2%.
In an interview with the Wall Street Journal, Burberry’s CFO decided to spread the gloom, stating "It's not necessarily being felt by all of our peers, but we're certainly not alone." That guilt by association sent LVMH Moet Hennessy Louis Vuitton down 8%. Coach (COH) took an even steeper hit, as seen in this stock chart.
Stateside, Nordstrom (JWN) also got smacked by the Burberry warning contagion.
As did Saks (SKS).
Two weeks later Prada stepped in with a far more upbeat report that profits in the first half of the year were up 56%. Prada’s CEO characterized the notion that luxury goods are doomed as “hysteria.” For the record, China’s economy is indeed downshifting to a slower growth rate, but at a projected 7% rate that’s not exactly spelling the end of conspicuous consumption.
And that raises an intriguing opportunity. Negative hysteria can translate into bargains. Just take a look at how far Coach’s PE ratio has fallen of late.
The upshot of the Burberry warning may be that savvy investors can now pick up luxury retailers at outlet prices.