Christian Dior SA (CDI)

Source: CDI website

I thought that Kering was bad but then Christian Dior SA ("CDI") is just as heavy going! I was saved from reading Kering as ACCICB told me that he had read it partially and decided to give it a miss. The recent news about the change of top executives at Gucci did not help matters as it seems that Gucci sales is lagging behind its fellow brands such as Bottega Veneta. I wish that companies can cap their annual reports to 200 pages or lesser. Any longer becomes madness for the reader I feel. 

CDI was brought to my attention by ACCICB who was looking at LVMH for the longest time. For CDI, there are a few things that I like as well as a few things that gave me cause for concern. I also realized that many companies I researched on happen to fall into the category of family owned and managed companies. The risks and rewards of investing in such companies are widely written about so I shall not go into detail in this post.

I was pleasantly surprised that their numbers were better than my expectations despite the lackluster economy. They had a number of acquisitions or should I say partnerships since it is not a 100% buyout, which are in line with their long term strategy such as the acquisiton of Loro Piama, Nicholas Kirkwood, Marc Jacobs etc. All the divisions seem to be performing well except for Wines and Spirits which is lagging behind.

The Arnault family is the majority shareholder and management behind CDI and LVMH due to the complex shareholding structure that has been put in place. Besides Bernard Arnault himself, his family members are also involved in the running of the business in various ways thus succession issues is a non issue.

Among the various business segments, I find Christian Dior Couture and Selective Retailing the most promising for the future despite Couture currently at the bottom of the pile in terms of contribution to the Group. All divisions save for Wines and Spirits and Watches and Jewelry have an increase in revenue based on actual exchange rates.

I was heartened to see that their main revenues in terms of invoicing currency remains as USD and Euro thus FX would not affect them greatly as I don't wish to be caught in a FX game which is what some people holding Swiss stocks must feel after the shocking SNB's annoucement last week.

Given that an estimated 30% of their revenue comes in the fourth quarter of the calendar year, it means that the holiday spirit does have an effect on loosening the purse strings. At first I didn't quite like the part about committing to acquire the stakes of their business partners but after reading the details in Note 20, my fears were allayed since it relates to the remaining stakes in existing companies as well as the various distributorships.

I was surprised and delighted to find out that one of their business partners for the Wine and Spirits business was Diageo. Diageo would sell and deliver both groups' products to customers. I would have thought that it would have been Pernod Ricard given that CDI is French but guess I was wrong. There was a flurry of stakes taken up in various companies such as Loro Piana, Nicholas Kirkwood, Marc Jacobs, Benefit etc which just goes to show that they like the other major luxury groups are not resting on their laurels but constantly growing their empires.

Ever since I started noticing CDI, it's stock price has been slowly but steadily on the rise. Apparently Goldman Sachs says that luxury stocks like CDI will benefit from the recent QE announcements and I guess they are right as I've seen the stock price go up since last week. This is definitely a stock to watch. 

Comments

  1. I have always had fond memories of luxury stocks, because some of the first investments I made were in the Hong Kong luxury watch sector, and their business and ratio comps were LVMH, and the like.

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    Replies
    1. Me too, not only as investments but as a consumer! ACCICB calls it giving back! ;) it also brings back good memories when I was working in luxury CF.

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