As Burberry and Richemont Show Signs of Recovery, Luxury Stocks Rise.

The luxury-goods sector was one of the first to be severely impacted by the coronavirus outbreak, due to its exposure to China, where the virus originated. Global travel restrictions also stopped tourists from visiting fashion hot spots such as London and Paris.

The spread of Covid-19 across the world made matters worse for much of 2020, but the easing of restrictions in China and other parts of Asia has sparked the beginning of a recovery in recent months, despite many European countries reimposing lockdowns

As Luxury-goods stocks marched higher in Europe early on Wednesday, investors were encouraged by updates from British fashion group Burberry and Cartier owner Compagnie Financière Richemont.

Burberry’s third-quarter performance was less impressive, with underlying sales falling 9% to £688 million, a worse-than-expected decline. The company said reduced tourist traffic and store closures hit trading.

Burberry’s underlying sales fell 9% in the three months to Dec. 26, 2020, partly due to Covid-related store closures. However, strong sales growth of 11% in the Asia Pacific stores, led by its performance in mainland China, helped the stock climb 1.9%.

Burberry Outlet Boutique • Bicester Village
Credit: Burberry

AJ Bell investment director Russ Mould said Burberry’s results showed its reliance on tourism. “Its stores are often key destinations and picking up some of its checkered products has become second nature for many wealthier individuals. Travel restrictions imposed as part of lockdown measures in various parts of the world are hurting its sales,” he said.

Swiss luxury-goods group Richemont said third-quarter sales rose 5% to €4.19 billion, led by double-digit growth in the Asia Pacific—25%—and Middle East and Africa—27%—regions. Sales in Europe dropped 20%, largely due to renewed lockdown measures and travel restrictions across the continent, but were stable in Japan and the Americas.

Richemont continued its recovery from the coronavirus crisis as third-quarter sales rose 5%, again driven by China. The shares rose 1.9% in early trading. The positive sentiment spread across the sector, as shares in LVMH, Kering and Swatch Group also rose.

Vacheron Constantin
Credit: Vacheron Constantin

As with the second quarter, which saw sales begin to recover from the Covid-19 crisis, Richemont’s Jewellery Maisons segment was a standout performer as sales climbed 14% to €2.37 billion, supported by watch sales at Cartier and Van Cleef & Arpels.

Richemont’s gradual recovery, and that of the sector to a certain extent, can be charted over the course of the last three quarters. After declining 47% in the first quarter—April to the end June —sales fell 5% in the second quarter and have now risen 5% in the third. Europe remains a problem but the company’s presence in China, where sales surged 80% in the three months to Dec. 31, as well as Dubai and Saudi Arabia, has provided the impetus for the recovery.

With much of Europe still in lockdown and travel restrictions in place across many regions, the pace of recovery will vary from company to company.

The sector’s recovery won’t be smooth, particularly with new virus variants and the prospect of intermittent lockdowns until Covid-19 vaccines take full effect, but those with the luxury of a greater exposure to Asia are likely to fare better in the coming months.