Many JSE stocks have made a poor start in 2025. The retail sector has been hammered, nursing a rough hangover after partying far too hard in 2024 with major share price gains. The all share index may be flat thus far, but the underlying divergence in sector performance has been quite something.
Aside from the resource 10 index doing some heavy lifting (up 15% this month at the time of writing), there’s also been a helpful contribution from luxury stalwart Richemont. A 23% gain in the space of just a few weeks has secured a much better start this year for luxury enthusiasts who watched sector share prices wash away in the latter half of 2024.
As is so often the case, this rally in Richemont has been echoed elsewhere in the sector. LVMH is the king of this jungle and is up 15% thus far this year — in euro terms, of course. Similarly, Hermès International has achieved almost 16%. Bruised and battered Kering (arguably the weakest business model in the peer group) is up 9.5%, though the 12-month performance remains ugly at -28%. Burberry is another name that has been struggling recently, with a 20% rally this month adding to recent momentum in that turnaround. The 12-month performance at Burberry is a decrease of 8% though, so even a rally of that magnitude hasn’t put a smile on the faces of investors who got into the sector early in 2024.
The trigger for this sector rally was the release of Richemont’s sales update for the quarter ended December 2024. For a group that specialises in selling watches and jewellery with individual pieces that can cost as much as a family home, starting the announcement with the simplistic words “very solid” was as effective as it was basic. With record quarterly group sales and double-digit growth across every region except Asia-Pacific, Richemont surely could’ve given a more sophisticated description for the performance. Clearly, the Cartier copywriters and the investor relations team don’t share a water cooler.
The double-digit growth in developed markets was a welcome surprise, particularly as all eyes have been on mainland China as a source of much pressure in the luxury market. That pain isn’t over yet, with Asia-Pacific sales down 7% thanks to a decline of 18% in mainland China, Hong Kong and Macau. Markets such as South Korea are helping to mitigate some of the problems, but they can’t offset it entirely as China is just too large and important.
Despite the ongoing pressure in China, the market is looking ahead to the prospects of better earnings. Richemont’s p:e has shot up to 29, well ahead of the three-year average of 24. It still has some way to go to reach the frothy levels of 37 achieved in May 2023 before the wheels came off for the sector. At the time, the media was filled with articles about LVMH’s Bernard Arnault (the so-called wolf in cashmere) overtaking Elon Musk as the world’s richest man. The questions being asked were around Arnault’s succession plan rather than whether the growth could continue. Those are signs of a bubble.
Speaking of succession, Arnault has been appointing his offspring to the LVMH board. Only one of his five adult children isn’t on the board — perhaps because he didn’t use his silver spoon correctly as a toddler? The market is likely to get increasingly nervous about this, particularly when Richemont as the major sector alternative offers just one other Rupert with whom to get to grips. These luxury groups tend to have very different business cultures to what you’ll find in banking or technology.
Perhaps keeping it in the family is the right approach as Burberry has struggled with any sort of consistency at CEO level. Joshua Schulman has only been in the top job since July 2024 and the share price has returned more than 60% over that period, so that’s quite the start. He is highly experienced in the sector, having led Jimmy Choo, Coach and Michael Kors in previous roles.
Burberry always seems to be in the throes of a turnaround, which is both an opportunity and a risk. Revenue growth is still as red as the recent line of Burberry Check scarves and the CEO is cagey about quarterly guidance, so there’s still much uncertainty. Then again, on a sales multiple of 1.6 (vs 4.9 at Richemont and 4.2 at LVMH), perhaps the market will pay investors here for taking the risk. Either way, it’s a fascinating sector!
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