GIULIETTA TALEVI: For the super-rich, the pandemic has been a time to splurge

If you care to know what the world’s (super-)wealthy spent their cash on in the run-up to the festive season, then Richemont and Burberry’s third-quarter results, released on Wednesday, are illuminating.

Sensational numbers from Richemont, in particular, indicate that a stock market rally through the pandemic, coupled with lingering Covid travel restrictions, meant that truly colossal sums of money were lavished on the world’s finest watches, perfumes, jewellery, handbags and high-end clobber.

The Rupert family’s luxury titan grew sales for the three months ended December by an almost unprecedented 32% at constant exchange rates and 35% at actual exchange rates.

The Americas, especially, stand out, where sales at constant rates were a truly eye-popping 55% higher, besting every other region for the group.

Burberry, on the other hand, reported a 26% increase in “full-priced” comparable sales on the third quarter of 2020, also helped by a resurgent American market.

Shares in both companies rallied over 5% on Wednesday and the update thoroughly vindicates Richemont’s performance on the stock market last year, when it gained 84% – excluding dividends.

While millions of people lost – or quit – their jobs during the pandemic, the world’s billionaires had a roaring time. According to data from Forbes, the US’s billionaires grew $2.1-trillion richer during the pandemic, a gain of about 70%. They also increased in number. According to Forbes, in March 2020 there were 614 Americans with 10-figure bank accounts; by October there were 745.

That money’s got to go somewhere – real estate, superyachts, art (NFTs anyone?), shoes, watches.

The numbers may also indicate that the age of the slovenly pandemic track pant is behind us. Burberry CFO Julie Brown says: “We saw a restoration of growth in rainwear as people looked for a more formal aesthetic.” 

A Financial Times (FT) article, published in December, looks at how “once enthusiastic property investors” in China are preferring to buy watches rather than real estate. You can see why: Chinese authorities are clamping down on housing speculation, and if the wobbles at Chinese housing developer Evergrande are anything to go by, you’d probably be very nervous to sink your money into some soon-to-be-demolished housing development.

“Multiple high-end watch resellers told the Financial Times that business had taken off in recent months as wealthy individuals stopped buying additional homes and instead spent their extra cash on luxury timepieces such as Rolex and Patek Philippe. The shopping spree, said experts, has contributed to a 40% surge in China’s imports of Swiss watches” in the first 10 months of 2021.

The big question for investors is what may happen to these luxury goods groups in 2022 – not just from a sales perspective, but from a share price performance.

In another FT Big Read, analysts estimate that luxury goods sales will increase from €283bn in 2021 to between €300bn and €310bn in 2022.

Part of that will come from price increases. Louis Vuitton, Hermès and Chanel hiked prices over the pandemic. According to the article, “in the UK Chanel’s classic flap bag is now £6,630, up 40% from early 2020”, and analysts at Citi say some brands are looking at double-digit price increases in the year ahead. That “should deliver double-digit revenue growth for the industry even if volume growth normalises”.

This is of course the only industry in the world where price hikes simply make your product more desirable, not less.

But back to the share prices: thanks to its 2021 gains, Richemont is hardly cheap: it trades at a forward p:e multiple of just over 30.

Burberry is a somewhat more palatable 21.5, while the big dog of the luxury houses, Tiffany owner LVMH, trades on a forward p:e of 33.7.

Actually, that’s still considerably lower than Ferrari, now on a p:e of 45.

Burberry, according to analysts surveyed by Bloomberg, has a majority hold recommendation while analysts still rate Richemont, LVMH and Gucci owner Kering a buy.

If interest rates rise this year, that will almost certainly cool the world’s stock markets. It would be surprising to see gains anywhere in the region of those experienced in 2021 but given their collective sex appeal, it’s probably foolish to believe that these companies are going anywhere but up.

Talevi is editor of the FM’s Money & Investing section