Flu Fears Hurt Luxury Stocks

Upscale firms with travel-related businesses seen as vulnerable.

LONDON — Swine flu could be the next blow to Europe’s luxury goods stocks, which have already taken a beating in the economic downturn.

This story first appeared in the April 29, 2009 issue of WWD.  Subscribe Today.

Shares in Burberry Group, Compagnie Financière Richemont SA, Bulgari SpA, LVMH Moët Hennessy Louis Vuitton and PPR all fell on European stock exchanges Tuesday, the same day it was confirmed the virus had spread further afield from Mexico and the U.S. to countries including Canada, France, New Zealand, Israel and Britain.

On Wall Street, the threat of a pandemic has had a mixed impact, with some shares rising and others falling, depending on the sector. Retail shares improved modestly despite five more confirmed cases of the disease in New York City, for a total of 45.

London-based Sanford Bernstein analyst Luca Solca issued a research note Tuesday suggesting swine flu could affect luxury goods sales, particularly if international travel is restricted. The note explored the possible effects of swine flu on the sector based on the assumption the virus “will be similar in magnitude and seriousness to the 2003 SARS outbreak.”

Solca added he expects the World Health Organization to recommend travel restrictions following the outbreak. “Luxury goods sales are impacted by changes in international travel,” Solca wrote. “Our ballpark estimate is that [around] 20 percent of luxury products are purchased by people traveling for some reason. [Recommended travel restrictions] would in turn cascade into corporate travel restrictions and independent travel curbs, with the obvious negative impact…on luxury goods sales.”

The U.K.’s Foreign Office on Tuesday advised against all nonessential travel to Mexico, as did the U.S. Centers for Disease Control and Prevention.

“How the virus affects luxury goods depends on how serious [the virus epidemic] is,” said Solca. “Assuming swine flu is like SARS — i.e. far from devastating but serious enough — the more probable risk for luxury goods stocks is short-term weakness and extended range-bound trading.”

Burberry’s shares closed down 3.3 percent at 381 pence, or $5.56, Tuesday, while shares in Richemont fell 4.92 percent Tuesday to 19.89 Swiss francs, or $17.26 at current exchange. LVMH shares fell 2.9 percent to close at 55.51 euros, or $73, in trading on the Paris Bourse, while PPR declined 4.8 percent to 58.49 euros, or $76.92.

In Milan, the S&P/Mib index closed down 1.5 percent to 18,541. Shares in Bulgari dropped 3.9 percent to 3.87 euros, or $5.09, while Luxottica Group SpA slipped 2.3 percent to 13.71 euros, or $18.03, and Tod’s SpA fell 2.7 percent to 39.17 euros, or $51.51. Mariella Burani Fashion Group SpA was the day’s biggest fashion loser, sliding 7.4 percent to 5.10 euros, or $6.70.

Troubled eyewear firm Safilo Group SpA bucked the downward trend, gaining 0.6 percent to 0.44 euros, or 58 cents, a day after chief executive officer Roberto Vedovotto said talks between majority shareholder Only 3T SpA and four private equity funds were ongoing and a deal could be reached before the summer.

In Japan, the Nikkei 225 fell 2.7 percent to 8,493.77 on growing doubts about earnings prospects and a strengthening yen. Department store Isetan Co. Ltd. fell 1.5 percent to 839 yen, or $8.68, and rival Takashimaya Co. Ltd. slipped 0.8 percent to 629 yen, or $6.50, while Uniqlo-owner Fast Retailing Co. Ltd. dipped 1.6 percent to 9,950 yen, or $102.9.

Across the Pacific, the S&P Retail Index rose 0.6 percent, or 2.08 points, to 334.74, as the Dow Jones Industrial Average slid 0.1 percent, or 8.05 points, to 8,016.95. Among the top retail gainers for the day were Caché Inc., up 14.7 percent to $4.30, and The Talbots Inc., ahead 12.9 percent to $2.27. Although swine flu wasn’t the dominant consideration on Wall Street, in Sacramento, Calif., California Gov. Arnold Schwarzenegger declared a state of emergency and asked Washington for an additional $1.5 billion to fight the virus.