Share Watch: Dior worries as luxury is unfashionable in China
Published 21/12/2015 | 02:30
There is a story (probably apocryphal) that the legendary Coco Chanel once offered to 'dress' Brigitte Bardot. The sultry actress is said to have impatiently replied: "Couture is for grannies."
This can only be the same Brigitte who later declared, "only idiots refuse to change their minds", because the French, more than any other nation, understand the immense value, in cultural and economic terms, of fashion. It is, after all, part of French history.
Haute couture can seriously claim to have forged the post-war economic recovery in France and the company we are examining today, Christian Dior, was front and centre of that recovery.
Then, when coal and oil were so important to France, it was claimed that the export of a single dress by a leading fashion house could enable it to buy ten tonnes of coal, and a litre of perfume was worth two tonnes of petrol.
At the end of the war, Christian Dior, the designer, ran a small fashion house providing exclusive garments for the elegant and wealthy, mainly from the USA and British royalty. It was funded by the textile industrialist Marcel Boussac, the richest man in France. With brilliant timing Dior, in 1947, introduced the 'New Look', a fashion concept which banished the miseries of the previous decade and ushered in an elegant new window on the world. Its success was phenomenal. Dior was soon accounting for 5pc of all French exports. When ten years later Dior died, another creative genius, Yves Saint Laurent, was found and as a leader in fashion, the company seldom looked back.
Dior, however, has not been without its problems. During the 1980s, the Boussac textile empire (and Dior) suffered the pressure of heavy losses, thanks to competition and the shift from cotton to synthetics. This led firstly to the effective nationalisation of the firm and eventually to bankruptcy in 1985. As this happened, a 34-year-old financier, Bernard Arnault, stepped into the breach and snapped up the legendary corporation for one franc.
Today he controls 72pc of the €29bn company through his family holding Group Arnault; a pretty decent return on the purchase price.
Arnault controversially closed the textile plants and focused on Dior and department stores. In time, he developed Dior into the world's largest, and possibly most important, fashion group. Using it as a vehicle, Arnault acquired a controlling interest in LVMH, France's top luxury goods company. Today, Christian Dior SE is a holding company involved in multiple luxury products like clothing, wines, cognac, jewellery, leather goods, luggage and cosmetics. Over time, Dior reduced the number of its licensees, opting instead for company-owned stores with an emphasis on quality and exclusivity. Today, it has over 200 stores, over half in Asia while North America and Europe have more than 45 locations each. Its retail activities account for 90pc of its sales, its peers 66pc.
Dior's shares trade at around €162, a midpoint between its high and low for the year. The stock hit a low of €40 in 2009 as might be expected, given the extent of the recession. It hit a record €195 per share early this year. Revenue in the last five years has been impressive, moving from €20bn in 2010 to €35bn this year. Since 1994, Dior has averaged 14pc sales growth; sector growth was 5pc. Its current price-to-earnings ratio is an undemanding 12 and its operating income increased from €2.2bn to €5.9bn in 2014. Earnings per share have more than doubled but dividends fell.
Dior is a couture gem, with a strong retail network and a durable competitive brand, so its shares will always be in demand and a worthwhile investment.
However, the horizon may be clouding. After years of soaring revenue and profits, the company is finding new challenges in its Asian markets. Slower growth in China as the government there rediscovers its socialist past has been a particular difficulty. A crackdown on ostentation is making the hitherto unstoppable luxury sector more difficult. Can we expect some beautiful Chinese actress to say soon: "Couture is not for Lefties"?
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.