Lux­ury cruise mar­ket

The ris­ing mid­dle class is a huge po­ten­tial mar­ket for leisure ac­tiv­ity.


The lux­ury goods in­dus­try has suf­fered from slow­ing Chi­nese de­mand, while ter­ror at­tacks world­wide have hurt tourism and trav­el­ers’ spend­ing on lux­ury items this year.

But even with fall­ing earn­ings growth and sales that UBS Group AG warns may worsen, many lux­ury goods mak­ers have in­creased their div­i­dends in a bid to lure in­vestors, So­ci­ete Gen­erale SA an­a­lysts wrote in note last month.

The strat­egy hasn’t worked in the past year, with aMor­gan Stan­ley in­dex of shares track­ing firms with high and sus­tain­able pay­outs slump­ing 16 per­cent, three times more than the Stoxx Europe 600 In­dex.

Higher div­i­dends at a hand­ful of strug­gling posh-prod­uct mak­ers are a lux­ury they may not be able to af­ford — that ap­pears to be the con­sen­sus view.

Take Richemont and Tod’s SpA, for ex­am­ple. Both are down more than 20 per­cent this year and both are still squarely in the sights of short sell­ers.

Lin­ger­ing ex­pec­ta­tions that they’ll raise div­i­dends even af­ter re­port­ing de­clin­ing sales are at­tract­ing bear­ish traders.

“De­spite the soft­en­ing of their busi­ness in some of their key-growth mar­kets, th­ese com­pa­nies are still grow­ing their div­i­dends,” said Si­mon Colvin, an an­a­lyst at IHS Markit Ltd in Lon­don. “It doesn’t take a lot for the div­i­dend to be­come un­sus­tain­able. You have to be very wary as a div­i­dend in­vestor — that high yield some­times car­ries risk.”

While Richemont fore­cast op­er­at­ing profit slumped 45 per­cent in the first half, an­a­lysts see it rais­ing its div­i­dend for an eighth year. For Tod’s, which posted a sixth se­mes­ter of fall­ing earn­ings, pay­outs are pro­jected to climb 15 per­cent.

The com­pa­nies have some of the most gen­er­ous div­i­dend yields in the BI Europe Lux­ury Goods Top Peers, and their short in­ter­est of more than 6 per­cent is among the high­est, ac­cord­ing to data com­piled by Bloomberg andMarkit.

Like them, Salvatore Fer­rag­amo SpA and Hugo Boss AG are some of the com­pa­nies most bet-against in the sec­tor, with a short in­ter­est of more than 5 per­cent and shares down this year.

Their pay­out yield is higher than the av­er­age for mem­bers of the lux­ury in­dex, even though they’re strug­gling to turn them­selves around. Swatch Group AG, whose firsthalf profit was the worst in seven years, also has a div­i­dend rate higher than the mean. With a short in­ter­est of 27 per­cent, it’s the most-shorted com­pany of the re­gional Stoxx Europe 600 In­dex.

LVMH Moet Hen­nessy Louis Vuit­ton SE and Ker­ing SA’s pay­out yields are also higher than the in­dus­try’s av­er­age, but the dif­fer­ence is that some of their units have shown an in­crease in de­mand. Their stocks are up this year, and their short in­ter­est of less than 1.2 per­cent is lower than the av­er­age for the in­dus­try.

Her­mes In­ter­na­tional SCA, which scrapped its an­nual sales growth tar­get, has one of the low­est div­i­dend yields among peers. Its short in­ter­est is at 0.7 per­cent, and the shares are up 14 per­cent this year.

Even if firms have man­aged to main­tain high pay­outs so far, the wors­en­ing sales will even­tu­ally hit, ac­cord­ing to Benno Gal­liker, a trader at Luzerner Kan­ton­al­bank AG in Lucerne, Switzer­land.


Chi­nese tourists shop at the Ga­leries Lafayette depart­ment store in Paris in 2015, when lux­ury goods’ sales were bet­ter.

15 per­cent ex­pected rise in div­i­dend pay­out by Tod’s SpA this year

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