Once a company builds a a strong and durable moat around its business, its future cash flows are secured. Some luxury brand companies have, indeed, built huge barriers to entry, allowing these businesses to charge large price premiums for their products. Some of this businesses, such as Luxottica Group SpA (ADR) (NYSE:LUX), own a huge part of the industry they operate.Let’s take a look at three luxury companies that have built resilient businesses around their brands and distribution networks.
America’s most glamorous jeweler
Tiffany & Co. (NYSE:TIF) represents one of the best-managed and most dominant brands among international retailers. Its sales make it the world’s second largest jewellery retailer, and its brand its expanding fast around the world while not losing any of its luster. Besides, the company utilized the recent economic downturn as an opportunity to reevaluate its cost infrastructure. Since the 2009 crisis, Tiffany & Co. (NYSE:TIF)’s management reduced headquarters and store staffing, and focused its expansionary efforts on emerging markets and smaller boutiques in the US. I expect the company will be able to show ameliorated margins as lower commodity prices flow through Tiffany & Co. (NYSE:TIF)’s income statement.
Beating first quarter EPS consensus estimates by 34% and growing sales at a 9% year-over-year (yoy) rate, I think Tiffany & Co. (NYSE:TIF) is a great buy if you want a long term investment. The company trades at 2013 22x P/E and pays a 1.65% cash dividend yield.
Made in Italy for the entire world
Luxottica Group SpA (ADR) (NYSE:LUX) owns many the world’s most famous sunglasses brands, such as Ray-Ban, Oakley and Persol. During January of this year, the company presented last year’s full results–and the figures were impressive. In 2012 Luxottica Group SpA (ADR) (NYSE:LUX) recorded its highest ever earnings as 4th quarter sales were up by 8.2% yo, and its 26% yoy top line growth in emerging markets does not surprise me. The company says that 2013 will also be a great year, and expects sales to be 10% higher than in 2012. Its vertically integrated supply and distribution chain is a very tough barrier to entry for new players. As a matter of fact, most companies (from Tiffany & Co. (NYSE:TIF) to Prada and Giorgio Armani) just hand-in their sunny businesses to Luxottica Group SpA (ADR) (NYSE:LUX).
Trading at 2013 28x P/E and paying a 1.2% cash dividend yield, Luxottica Group SpA (ADR) (NYSE:LUX) looks fully priced. That said, luxury (and a great, durable business) always fetches a high price tag.
The complete worldwide luxury champion
I think , best know as , is the best luxury goods company in the world. Its amazing brands and powerful distribution network makes the wines and spirits to watches and handbags company a unique asset. Besides, LVMH, which is still growing its top line at full-speed, trades at relatively low multiples.