Updates on LVMH, Lululemon Athletica, and Five Below; Another data point that our economy is strong
Amid earnings season kicking off and a big focus on consumer spending, let's come back to three stocks that regular readers will be familiar with...
1) First up is luxury-goods giant LVMH (MC.PA). The company is headquartered in France and its main listing is on the Paris stock exchange, but it also trades over the counter here in the U.S. under the ticker LVMUY.
The stock jumped 9% yesterday in the wake of this news from the Wall Street Journal: Cartier Owner Richemont's Sales Beat Buoys Luxury Stocks. Excerpt:
Cartier owner Richemont reported better-than-expected quarterly sales, triggering a rally in luxury stocks, after its core jewelry division bucked a downturn in demand for high-end goods.
The Swiss luxury group said it achieved its highest-ever quarterly sales in the three months to December, returning to growth thanks to strength in its jewelry division – housing heavyweight brands like Cartier and Van Cleef & Arpels – which offset weaker watch sales.
Richemont said Thursday that it generated sales of 6.15 billion euros ($6.33 billion) for the three months to Dec. 31, up 10% compared with the prior-year period at both actual and constant exchange rates. Sales grew 10% at constant currency, following a 1% decline the prior quarter.
The result surpasses analysts' projections of €5.63 billion, according to a poll of estimates compiled by Visible Alpha.
And as the article continuities, that led to some big gains in the stock – and other related ones:
The update sent Richemont's shares more than 17% higher at 162.90 Swiss francs, its biggest one-day percentage rise ever. The news also spurred sharp gains across European luxury companies, with Louis Vuitton and Dior owner LVMH and Gucci parent Kering jumping more than 8% and other companies rising significantly.
Regular readers will recall that I analyzed LVMH in three e-mails on November 14, November 21, and November 22, after which I concluded that:
LVMH – a far-above-average quality business – is trading at a roughly 12% forward-price-to-earnings-multiple discount to the average large company. That's pretty attractive.
So if I owned the stock as part of a conservative long-term-oriented portfolio, I would feel very comfortable holding on.
As for adding it to my portfolio, I would think about buying a half position and look to buy more if the stock sells off on, say, bad news about tariffs or a weak fourth-quarter earnings report.
My timing was excellent, as the stock was close to a two-year low that day and has jumped 19% since then – as you can see in this three-year price chart:
I continue to like LVMH and look forward to analyzing its fourth-quarter earnings, which are scheduled to be released this coming Wednesday.
2) I gave readers another great idea of a beaten-down retailer when I wrote about apparel company Lululemon Athletica (LULU) on August 22 and August 23, when it closed at $268.55 per share. I concluded:
So with Lululemon's stock roughly cut in half and trading at around 18.5 times consensus analysts' estimates over the next 12 months, does that mean it's time to buy?
I still need to do more work on this to be sure, but I'm inclined to say yes.
That said, given the slowing economy and difficult year-over-year comparisons, I think there might be another quarter of flat growth in the Americas... So it wouldn't surprise me to see the stock take one more leg down after the company reports earnings next Thursday.
Indeed, LULU shares did take a leg down after the company reported earnings at the end of August – from August 23 to the bottom on September 10, they fell 8% and hit $247.18.
But since then, Lululemon has been a rocket ship... soaring 50% to close yesterday at $370.99 per share.
Take a look at this three-year stock chart:
While Lululemon recently raised its guidance for the fourth quarter, predicting growth of 11% to 12%, I wouldn't be chasing this stock after such a big move. But it's a great company, so look to buy on weakness.
3) Finally, let's take a look at one more out-of-favor retailer: Five Below (FIVE)...
I wrote about the stock a year ago in my January 5, 2024 e-mail, when it closed at $200.84 per share – warning readers to stay away from it.
But then, after it crashed by 62%, I wrote favorably about the stock on July 22 and July 23. However, I thought it was too early to buy – writing:
I would also be hesitant to buy the stock today... but I would be keeping an eye on it.
As you can see from the three-year stock chart, I was both right and wrong:
From $75.77 per share on July 23, Five Below continued to fall for two more weeks. It bottomed on August 7 at $64.97 per share – down another 14%.
But then I failed to pull the trigger... and the stock has moved upward sharply to yesterday's close of $92.83 per share – up 43%.
It would have been nice to nail the bottom, of course. But anyone who bought on July 23 has still done well – up 23%.
Overall, it's a good lesson in what I've said many times: It's better to be roughly right than precisely wrong.
4) The performance of these three stocks is indicative of strong consumer spending across the board during the holiday season, as this WSJ article from yesterday notes: From Cartier to Target, Investors Find Cheer in Holiday Spending. Excerpt:
Consumers snapped up Cartier jewelry and toys at Target this holiday season, powering through concerns about high inflation and the U.S. job market.
Retail sales in November and December, excluding automobiles, gas and restaurants, increased 4% from 2023 to $994.1 billion, according to the U.S. Commerce Department.
That was above the National Retail Federation's estimate of 2.5% to 3.5% growth. Online sales rose 8.6%, the NRF said, in line with the trade group's estimate of an 8% to 9% increase.
And as the article continues:
The sales, which aren't adjusted for inflation, reflected a return to more normal levels of growth following the Covid-19 pandemic, when pent-up demand led to big gains in 2020 and 2021.
"It's not a blowout year," said Craig Johnson, the president of research firm Customer Growth Partners. "But it's a good year."
Given that consumer spending accounts for roughly 70% of U.S. GDP, these solid numbers are another data point that our economy is strong.
My 2025 outlook, which I outlined in my January 3 e-mail, remains the same:
While I'm not eagerly putting my cash to work – I'm quite happy finally earning a nice, guaranteed return on it – I recommend holding on to high-quality stocks and index funds you own (and likely have big gains on).
Best regards,
Whitney
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