Luxurious Outperformance by Quiet Luxury Plays
Quiet Luxury stocks are on a tear this year. Since the launch of our CIO Vantage Point: Luxury, Redefined (dated 20 December 2023), “Quiet Luxury” companies have posted average gains of 10...
Chief Investment Office - Hong Kong15 Feb 2024
  • Quiet Luxury companies have outperformed Nasdaq and Global Equities by 3.7% and 7.1% respectively this year
  • The shift towards Quiet Luxury is underpinned by (a) Emergence of uneasy affluence, (b) Changing demographics, and (c) Shift towards sustainability
  • Quiet Luxury companies’ operating margin of 17.8% surpassed global equities’ 12.8% margin; Earnings outlook is equally impressive with CAGR of 9.8% for FY23-24
  • Demand for Quiet Luxury stays resilient as customers are less impacted by inflation and interest rates
  • China’s luxury market showing early signs of rebound and this provides further positive momentum for the industry
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Quiet Luxury stocks are on a tear this year. Since the launch of our CIO Vantage Point: Luxury, Redefined (dated 20 December 2023), “Quiet Luxury” companies have posted average gains of 10% this year (vs 6.3% for Nasdaq and 2.9% for Global Equities). Industry bellwether LVMH rallied 13% after posting strong quarterly revenue growth of c.10%. The strong result sent ripples of optimism throughout the luxury space as it dispelled fears of an imminent luxury crunch in an era of elevated bond yields.

Consumers gravitating towards Quiet Luxury. Consumers are increasingly drawn to brands that resonate with their refined lifestyle preferences and values. The shift towards Quiet Luxury can be broadly attributed to the following factors:
Emergence of uneasy affluence: Rising wealth gap and the cost-of-living crisis have pushed the affluent towards adopting Quiet Luxury and avoiding ostentatious displays of wealth.
Changing demographics: Younger consumers are increasingly drawn to Quiet Luxury brands that reflect their values and offer a more meaningful luxury experience. These brands focus on heritage and craftsmanship while avoiding overt status symbols.
Shift towards sustainability: The demand for sustainable and ethically produced goods is on the rise. This trend aligns with the broader shift towards environmental responsibility, making luxury brands that prioritise sustainability, craftsmanship, and durable materials more appealing than ever.

Which are the key Quiet Luxury companies? The recent earnings season continues to paint a picture of resilience for Quiet Luxury names whose customers are less impacted by inflation and interest rates. China’s luxury market is also showing early signs of rebound and this provides further positive momentum for the industry. Listed below are the key Quiet Luxury companies and their medium-term outlook:

Hermès International (RMS FP):
▪ Often regarded as the preeminent Quiet Luxury brand, Hermès has always maintained a signature style that is both elegant and understated.
▪ In the recent earnings season, Hermès posted 4Q revenue of EUR3.36b (up 17.5% y/y), beating expectations of EUR3.26b. Hermès’s shares rallied c.6.1% last Friday (9 Feb) after earnings release.
▪ Management Outlook: “In the medium-term, despite the economic, geopolitical, and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates…” (Axel Dumas, Chief Executive of Hermès)

LVMH – Moet Hennessy Louis Vuitton (MC FP):
▪ As the leading luxury conglomerate, LVMH boasts an impressive portfolio of 75 brands spanning five segments. This diverse range of high-end brands positions LVMH at the forefront of the luxury industry, catering to a wide array of preferences. In the recent earnings season, LVMH reported sales of EUR86.2b for the whole of 2023 (up 9% y/y), in line with analysts’ estimates. LVMH shares rallied c.13.9% on 26 Jan, after earnings release.
➢ Management outlook: “Regarding the size of stores in China … there are twice as many Chinese customers as in 2019… It means that the domestic purchase in China has grown significantly, so we have to meet that…” (Bernard Arnault, Chairman and CEO of LVMH)


Quiet by design, solid in fundamentals. On balance, we expect Quiet Luxury stocks to maintain positive momentum given their economic moat qualities and robust financials:
Premium margins: While the global luxury industry already possesses a higher operating margin (OPM) than global equities (14.1% vs 12.8%), the Quiet Luxury segment boasts an even more impressive OPM of 17.8%. This underscores the premium pricing Quiet Luxury companies can command.
▪ Impressive earnings outlook: Quiet Luxury companies in the Bloomberg Global Luxury Goods Index are expected to register average revenue CAGR of 9.8% in FY23 and 24, surpassing the broader market's 8.0%.



Figure 1: Quiet Luxury’s outperformance

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