Luxury fashion takes a hit

Luxury goods provider Burberry Group shocked the market last night with its earnings estimates, sending shares down by more than 20%. It is an important point in reference to Asian markets which many international brands rely upon for growth, particularly out of China. Burberry – known for the classic trench coats and check patterns – expects its pre-tax earnings to be in the lower end of prior guidance, but this still implies an earnings number in excess of GBP400m.

The news spread across the Asian markets with the Hang Seng Cyclical Consumer Goods & Services industry sector down by around 0.9% in today’s early afternoon trading. Sands China and Li & Fung lead the names lower, while Esprit Holdings managed to book a modest 0.5% gain. LVMH Moët Hennessy Louis Vuitton managed to book a 1% rise also in France overnight, but the group is much more diversified than Burberry, so a direct comparison – even though leveraged to the luxury space – isn’t necessarily fair.

This brings us to the Australian market. Three key listed fashion retailers will report their earnings over the next few weeks – Myer, David Jones and Premier Investments, which is one of the largest specialty retail owners in the country. Department store Myer is expected to book a fall in earnings in the order of 15% – that is the official prior guided figure.

This assumes earnings in the second half of 2012 come in at around $51m compared to $54m in the prior corresponding year, a decline of around 5.5%. We’ll have to wait and see what Myer reports, but there will be a vigorous discussion no doubt over the next few weeks about the ability of Australian retailers to navigate the market challenges and their current market prices versus valuations. David Jones was recently subject to a suspicious takeover approach which did not eventuate; it too needs to counter a weak earnings number with a plan to ride out the very touch retail market.

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