China is not going so bad… for a few
Bulgari stands out from the general feeling about China and predicts very good news from that market.
The complicated situation in China has had a devastating impact on the luxury sector, as it is one of the most dependent on the evolution of sales in that country. However, not all companies in the sector complain about it.Just some dates ago we talked about the strong impact of China (the collapse of its stock market and currency devaluation) in the market value of companies in the luxury sector, with falls of between 15 and 20% in the stock market. However, the Italian jewelry maker Bulgari, owned by French giant LVMH, has distanced itself with some surprising commentaries.
The company´s CEO Jean-Christophe Babin, says the company will get very good results in China this year. In his opinion, it is exaggerated the estimations on the impact of Chinese slowdown in the business growth of the luxury brands. According to Babin, Chinese GDP continues to grow at rates close to 7%, so there is more than enough margin for Chinese clients to continue to buy luxury products. In fact, he reiterated that the company plans remains unchanged in the country, which includes opening new stores and marketing campaigns to improve brand recognition. Bulgari´s CEO refused to concrete any result, although signaled that sales in the first two months of the third quarter were similar to those recorded in the first half of the year.
The sector, In Other Direction
These comments are quite different from the general feeling in the market. As mentioned, China’s importance lies not only in sales in the country but purchases by its tourists when traveling abroad. With the weakness of other traditional markets (Russia), lower Chinese growth and the devaluation of its currency (which makes purchases in other currencies more expensive) would expect a fairly significant impact on the industry sales. In fact, some companies like LVMH have already warned of a drop in revenue in the country´s sales.
However, the fact is that from the point of view of the market values the situation is somewhat less worrisome. Before the drop, valuations were high considering their historical averages. Only twelve months ago we felt that market levels as current left room for a rebound in valuations. Today this range is back, but is more limited by the expected impact of China on the results.
Bulgari is part of LVMH group since 2011 (it was bought for €3.7 billion). It was founded in Rome in 1884 by the Greek jeweler Sotirios Boulgaris, whose surname is the origin of the company´s name. Before being bought by LVMH, it went through serious financial difficulties due to the economic crisis. However, the financial support of the parent has allowed the Italian company to soar and once again become one of the reference brands in jewelry and high-end watches.
As the company is private (not listed) it does not publish individual results, so there are no financial data available. We can say that Asia is an important part of the business. LVMH acquired precisely when it is because it wanted to have a greater presence in this geographical area; more than 40% of the turnover of Bulgari came from that area. Last year the company produced the most expensive perfume in the world to celebrate its 130th anniversary. The colony, called Opera Prima, presented in half-liter jar of Murano glass with gold leaf and 25 carats of diamonds… all for the modest sum of €200,000.