Jim Cramer: luxury stockpicker

One month after describing First Republic as a “very good bank”, FTAV’s favourite stockpicker Jim Cramer turned his attention to luxury goods, tipping Estée Lauder, like LVMH and Hermès, to benefit from China’s economic rebound. . . 

I still think Este Lauder will do as well as these French giants when it comes to sales in China

— Jim Cramer (@jimcramer) April 14, 2023

From mainFT:

Shares in Estée Lauder plunged more than 20 per cent in early trading on Wednesday after the cosmetics group slashed its full year sales outlook because of a slower recovery in Asia.

The declines put the stock on track for their biggest single-day move in its 28-year history as a public company. Chief executive Fabrizio Freda blamed parsimonious Asian consumers explained as follows in the earnings release:

As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions. We are, therefore, lowering our organic sales and EPS outlook for fiscal 2023 to reflect significantly greater headwinds in our fourth quarter than we expected in February.

Tbf, Cramer’s thesis wasn’t entirely wrong. From the company’s report:

In mainland China, organic net sales grew in the fiscal 2023 third quarter. While January 2023 was pressured by low retail traffic and retailer destocking from the rise in COVID cases that began in November 2022 and continued into January 2023, organic net sales returned to growth, rising double digits in February and March 2023. However, prestige beauty growth was slower than expected for the fiscal 2023 third quarter.

But Wednesday’s share move suggests he wasn’t entirely correct, either. Customers in Asia are travelling again but buying fewer skin care products while they do so:

Specifically, in Hainan, while traffic into the island exceeded prior year levels, conversion of travellers to consumers in prestige beauty lagged. This led to the slower than anticipated depletion of elevated levels of retailer inventory and, therefore, lower replenishment orders. In Korea, the shipments to duty free retailers were pressured owing to the transition to post-Covid regulations as travelling consumers gradually return. In Korea, as well as in Asia more broadly, the travel retail recovery was challenged by the slower than anticipated resumption of international flights, granting of visas, and organised group tours.

There are four main takeaways, as far as we can tell:

• China’s economic reopening might not provide quite the boost to western companies many investors had hoped for.

• Hainan tourists are measurably less self-conscious in 2023.

• Tom Ford — whose eponymous brand was bought by EL last year — knows how to time an exit.