By Tim Seymour
You have heard me say on Fast Money that I think the Asian and emerging market luxury consumer is taking this industry on an extended joy ride that started in 2010.
China (NYSEARCA:FXI) is now largest luxury goods market in the world (followed by Japan). This, is why Tiffany (NYSE:TIF), Burberry Cartier, Chanel, Lancôme, Versace, LVMH, etc., will see multiple expansion.
China’s luxury goods buyers are much younger than U.S. and EU buyers, thus the market will grow faster as a larger age group will be buying for longer.
Over 80% of China’s luxury goods buyers are under the age of 45 vs. 30% in U.S. and 20% in Japan. The fringe luxury goods market is where there are more interesting and challenging projections to be made as some of these brands are not as bulletproof as the prestige, aspirational companies named above.
Companies like Coach (NYSE:COH), Michael Kors (NYSE:KORS) are more vulnerable to economic cycles and changing tastes until proven otherwise. Either way 2014 shapes up to be a solid year for EPS growth and multiple expansions.
Consensus calls for global luxury goods sales to grow 10% and EPS to expand 14.3% in 2014. Sales growth is projected 30 bps lower vs. 2013, though EPS expectations are more bullish at 230 bps higher. Bloomberg’s earnings growth in jewelry and accessories is expected to be highest on lower commodity costs and greater operating margin inherent in these businesses.