The luxury markets worldwide are under pressure again. From the U.S. to China, even high-end consumers are increasingly value-sensitive.
You'd think with a stock price down more than 40 percent this year Michael Kors could catch a break ahead of its earnings report on Thursday, but no such luck.
Most are at multi-year lows, but the bearishness just keeps coming.
Luxury brands Monday:
Michael Kors 3-year low
Fossil 3-year low
Ralph Lauren 4-year low
Coach 6-year low
What's up? They are all reporting in the next few weeks, and nobody has anything good to say about them, despite these ridiculous declines:
Luxury brands YTD:
Michael Kors down 48%
Fossil down 41%
Kate Spade down 36%
Ralph Lauren down 35%
Coach down 20%
For example, today JP Morgan downgraded Coach, noting that margins are increasingly under pressure, and didn't have much positive to say about Michael Kors either, worrying about its large exposure to Europe and its reliance on wholesale (full-price) versus off-price merchandising, which is becoming a larger part of the retail experience.
In other words, the customers are getting very price sensitive. Even the higher-end customers.
Smaller firms also ganged up on Kors. Canaccord lowered its price target to $45 noting that "sluggishly negative traffic retail trends from last quarter persisted."
Oppenheimer said there were "negative estimate revisions expected ahead."
Piper Jaffray agreed; they lowered estimates and reduced the price target to $38 (from $44), suggesting inventory is building.
It's not like the stock is expensive; full year earnings are now only nine times earnings. But nobody wants it, even cheap.
You can see the slowdown playing out in China as well. Take Hong Kong and Macau, where a weak economy and an anti-corruption drive have had a notable impact on sales.
June Retail Sales in Hong Kong were down 0.5 percent year-over-year, likely because there are fewer visitors arriving from the mainland.
The luxury space in Hong Kong is particularly under pressure:
June Retail Sales (year-over-year)
Jewelry/watches down 10.4%
Apparel down 3.8%
Department stores down 3.3%
Gaming is also getting hit. The decline in tourist activity from mainland China led to a 37 percent decline in gaming revenues in the first half of 2015, according to Moody's. Gaming is half the revenues of Macau, so it was not surprising that last Thursday the Monetary Authority of Macau said it expects the economy to contract in the mid-teens this year. Mainland China residents are two-thirds of the visitors to Macau.
Still, not all luxury retailers are under attack. The biggest of them all, LVMH, surprised everyone last week with a strong earnings report. They too noted the weakness in Macau and Hong Kong, but Chinese tourist sales in Europe were strong.
Still, it was noteworthy that wine and spirits sales in China appear to be slowing. Wine drinkers have bitterly complained for years that Chinese buyers have dramatically driven up the price of French Bordeaux and Burgundy wine as well as Cognac. The company noted that it has seen "destocking" trends in China, which is eurospeak for "there's a glut and nobody is ordering new product."
Cognac drinkers can only smile.