Anyone who has flown recently will testify to the money being spent by the big fashion brands to ensure that every inch of airport corridors is plastered with their expensive advertising. These days, you walk off a plane straight into a sparkling duty free shop where lotion and potion manufacturers have one last chance to tempt you into a purchase. Is this desperation or are the luxury houses in rude health given the growth in demand for their goods in Asia? We will take a look at the investor sentiment in Burberry, Estee Lauder, Hermes, Bulgari , Tods, Luxottica, Christian Dior and Richemont to see that few are predicting trouble ahead.
Take Burberry (BRBY) as an example. Investors are not betting against the shares rising yet higher despite the 400% share price increase since the beginning of 2009. The demand to borrow is below 1% of the market cap while institutional investors (who lend) have been buying more shares steadily over the past year to 25.5% of the company. Such asset managers owned even more pre credit crisis so they could continue buying.
Estee Lauder (EL) has previously been a popular target for short sellers but this is not the case right now. Like Burberry, the shares have been on a very good run. The short interest has just begun to lift off a two year low as the price momentum stalls but it is only 2.4% of total shares. Of note, institutional investors have reduced their holdings from 37m shares in June to 33m shares today. It is perhaps this selling that is causing the price to slowly drift down from $70.
Despite so many analysts categorizing Hermes (RMS) as a sell/underweight, few are listening! Short selling is at a 2 year low and keeps reducing to a current level of 2% of total shares. Funds who lend have been buying since the beginning of this year.
Bulgari (BUL) is the stand out name being still quite heavily shorted at 10% of issued shares on loan but this has come down from 14% in April. Unlike many of their peers in the global luxury goods sector, funds began betting their shares would fall at the beginning of this year. The shares of Bulgari have moved largely sideways since then so this shorting has not been particularly profitable. With some sell side firms lifting their price target for BUL we may see more short covering. The “days to cover” is 25 days based on low volume. Funds who lend have not taken a view, sticking to owning around 37m shares or around 13% of the company.
Shoemaker Tod’s (TOD) has low short interest (0.3%) and flat institutional ownership with just shy of 9% of issued shares in hands of funds who lend. They were a profitable short in 2007 but not now. Demand to borrow Luxottica (LUX) is low (1.2%) in both the Milan listing and in the ADR. This is also the case for Christian Dior (CDI) which sees less than 1% on loan. Finally, Richemont (CFR) only has 2% of issued shares on loan but this is gently rising as the shares struggle to hold above CHF 43.
If you think luxury stocks can’t go any higher then there is bountiful supply to borrow and no danger of a crowded short. However, you would be expressing a minority view with the exception of Bulgari which remains a fairly sizeable short. In the name of research I am off to Hong Kong for our Forum (7th Oct) to get a direct sense of whether high fashion is selling like hot cakes over there and I may even boost their sales by giving my autumn wardrobe a spruce.
