Luxury Gets Top Dollar in Wall Street Rush to Safety – WWD

Wall Street may not always appreciate fashion romance.

To measure the overall financial weight of a business, they often look at enterprise value. This is the current value of all debt raised by the company and all equity minus the cash on hand.

So a company’s value boils down to all the money it manages to attract from bond and equity investors, and that value extends to stocks that aren’t listed on the public market.

This is the amount you would have to pay to buy a company at its current share price, and it can be read as a multiple of sales or earnings, so it’s a good way to see who’s winning and who’s not.

“The market is evaluating these companies based on the subsector they are in and comparing them to each other to see which are more valuable and which are more valuable,” said Kelly Pedersen, partner and U.S. retail leader at PwC. Start deciding whether or not

As with malls, proximity is key.

Luxury companies entering the market are therefore likely to receive a premium valuation, at least initially. But, like Hermès International, for example, it has to have at least €16 of debt and equity investment credit for every €1 of sales.

A WWD survey of S&P Capital IQ data on more than 100 fashion, luxury, beauty and retail companies shows that investors are taking refuge in relative safety. Big designers and beauty companies have won the top dollar, and some growing companies are still working towards monetization.

Among the leaders are Simon Property Group Inc., Shopify Inc., Brunello Cucinelli, Elf Beauty Inc., Li Ning Co., On Holding, Inter Parfums Inc., The Estée Lauder Cos. Inc., L’Oréal, LVMH Moët Hennessy included. Louis Vuitton.

It is no surprise or change that European luxury companies rank among the top in the industry by valuation.

“Economy is down, but it’s still luxury [sales] It will continue to grow,” said Pedersen. “Luxury, in particular, takes its own path. Sometimes it’s on its own planet in terms of what its valuation looks like.”

Large luxury companies, including Hermès, LVMH Moët Hennessy Louis Vuitton, Kering, etc., are well-known, have strong profit margins, are generally very stable, and are able to sell other companies in both good and bad times. They make more profit than companies.

Luxury leader LVMH, for example, last week reported a 15% increase in fourth-quarter revenue, and its head Bernard Arnault expressed confidence heading into 2023, pledging to implement a COVID-19-free policy. He pointed out signs of recovery in China, which withdrew.

“I am confident that China’s leaders will be very shrewd and will certainly take advantage of this period when China’s growth is starting to pick up,” Mr. Arnault said last week. “If so, and if we see signs of that in January, there are plenty of reasons to be confident or even optimistic about the Chinese market.”

LVMH receives €5.40 from investors for every €1 of annual revenue and is the fashion industry’s highest-rated earnings multiple.

What has changed in the last 18 months is the market’s enthusiasm for new brands and business models. Market growth was enough to move Wall Street, but costs and profits are also under scrutiny.

Pedersen said large investors are asking companies: How do you feel about managing costs on an ongoing basis rather than one-off?”

In tough times, investors lose their patience.

“If you don’t see a lot of progress and profitability quarter to quarter, at some point you’ll see investors say, ‘This model doesn’t really work,'” said Pedersen.

The market is taking a hard look at what was once considered the next big thing. Among them is Stitch Fix, which gets Wall Street’s investment of just 20 cents for every dollar of sales.

Instead, the money that investors used to put into next-big-name companies is now going into safer investments.

Matthew Katz, Managing Partner of SSA & Co, said: By getting ahead of what investors are likely to experience in difficult times, you can get more consistent returns for your investors. ”

In companies with lower earnings multiples, many are looking for ways to get back into growth mode.

“These companies are on a lot of people’s lists. What’s their market position? What’s the difference between them?” Katz said.

And companies caught in weak valuations find themselves in between luxury brands, which are still enjoying strong consumer spending, and ultra-value brands, which are experts in dealing with consumers when recession fears mount. I have.

“How are retailers stuck in the middle of large real estate footprints driving growth in this market?” Katz said.

This is what established names such as Nordstrom Inc., Macy’s Inc., Fossil Group Inc. and Chico’s FAS inc. have to prove to the market.

Despite their reach and consumer connections, each company gets less than 50 cents from investors for every dollar of revenue.

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