Why US Luxury Firms Have Underperformed European Peers in 2015

Coach stock is down -16.9% year-to-date (or YTD) to $31.20 on July 31, 2015. Coach’s total returns have come in at -15.5%. US luxury peers haven’t performed much better this year.

• Ralph Lauren (RL) has returned -31.5%.
• Kate Spade (KATE) has returned -37.1%.
• PVH (PVH) has returned -9.4%.
• Michael Kors (KORS) has returned -44.1%.

In comparison, Louis Vuitton Moet Hennessy (LVMUY), Burberry (BURBY), and the S&P Global Luxury Index have provided total returns of 21.3%, 1.3%, and 4.2%, respectively. The S&P 500 Index (SPY)(IVV) has returned 3.4%.

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The euro’s depreciation over the past year has made both travel to Europe and shopping there more affordable for luxury brands. Plus, the enhanced liquidity in the Eurozone as a result of the European Central Bank’s bond buying program is partly translating to higher spending.

Burberry (BURBY), Britain’s largest luxury firm, reported 6% comps growth in 1Q16 last month, even as comps sales in Hong Kong slumped at a double-digit pace. Gucci, owned by Kering (PPRUY)(KER.PA), reported like-for-like sales growth of 4.6% in 2Q15 on higher tourism spending.

The world’s largest luxury firm, Louis Vuitton Moet Hennessy (LVMUY)(MC.PA), which released results for 1H15 last week, reported double-digit organic growth in fashion and leather goods and strong sales in Europe and the United States.

A crackdown on conspicuous consumption in China and Hong Kong’s pro-democracy protests have also tilted the balance in favor of higher spending in Europe from Chinese tourists.

Coach reported positive comps in both China and Europe last quarter. Constant currency sales rose by 10% in China and by 8% in reported terms. Sales in Europe grew at a double-digit pace. So far, Chinese authorities’ discouragement of luxury spending has benefited mid-tier names like Coach and peers to the detriment of costlier brands. But the recent plunge in China’s equity markets will likely increase the headwinds that Coach is facing.

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