The sale of luxury goods is known to be highly dependent on general consumer mood and economic confidence. The recent global events have sent the financial markets into turmoil and there is concern that the early cycle recovery of the luxury sector may now be vulnerable. We look at investor sentiment in Tiffany and Co. (NYSE:TIF), LVMH Moet Hennessy Louis Vuitton Sa (EPA:MC), Hermes Sa (EPA:RMS) and Compagnie Financiere Richemont Sa (CFR).
Investors will be focused on commentary from Tiffany and Co today, when it releases earnings to provide an indication of how the luxury sector is performing world-wide. Following sharp short covering in Tiffany over the past two quarters, short interest reached an annual low of 2.8% of total shares outstanding on loan in early March. However, there has been a surge in short interest over the past two weeks, with levels currently standing at 4.2% of total shares outstanding on loan. This negative investor sentiment can also be observed amongst the long side of the market where there has been a sell-off in inventory by institutional investors. Lendable supply, which can be used as a proxy for institutional ownership, currently represents 26% of total share outstanding.
LVMH Moet Hennessy Louis Vuitton Sa, the world’s largest maker of luxury goods, has been snapping up an array of luxury brands in pursuit of global domination. LVMH does not tend to see high short selling activity. Short interest has been gradually decreasing over the past two years from the high of 6% and currently stands at a low of 1% of total shares outstanding on loan. Large funds who lend hold a mere 10% of the company, although this has decreased by almost 10% over the past week.
In addition to its acquisition of Bulgari, LVMH courted controversy last year when it surprised the market with its 20% stake in Hermes. Hermes has re-jigged its ownership structure to try to protect itself against further purchases. With a limited free float and ownership of institutional funds who lend extremely low, we see only 2% of total shares outstanding on loan. This represents almost half the available supply that can be borrowed.
Richemont’s rally in its share price, buoyed by a buy recommendation from Goldman Sachs and a forecast that 600 million new consumers would enter the luxury market by 2025, was short lived as recent world events unravelled. The company sees low short interest of 1.4% of total shares outstanding on loan, although institutional ownership has fallen by a quarter over the past week to 23% of total shares.
