How Second Half Life Plays: Luxury Companies Thrive

LONDON/PARIS, July 29 (Reuters) – While millions are fretting over whether they can afford to spend another $1,000 on energy this year, others are still splurge on $10,000 Hermes handbags because Prices have made the rich relatively unheard of.

A number of consumer companies, from spirits group Diageo (DGEL) to Birkin bag maker Hermes (HRMS.PA), reported this week that they are making money from their most expensive products and expect to continue to do so. A cost of living crisis that shows no signs of abating. read more

Increasingly high interest rates, rising inflation and a prolonged energy crisis are leading to the conclusion that the global economy is headed for a recession. read more

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But millions of wealthy consumers are still sitting on the savings cushion created during the COVID-19 pandemic and eager to treat themselves after two years of restrictions.

Hermes reported record quarterly profit margins on Friday, as sales rose sharply amid strong growth in Europe and the United States and a rebound in China in June.

Chairman Axel Dumas said he saw no signs of a slowdown in either sector, even though the company raised prices by 4% this year.

Carmaker Renault (RENA.PA) also said its turnaround strategy of focusing on selling fewer but more profitable cars was paying off, and upgraded its forecast for full-year margins. The most expensive Renault cars can cost over $100,000. read more

“The surprising resilience of European consumers can also be seen in the strong results of the luxury brand owner, Louis Vuitton (LVMH.PA), particularly in their fashion and leather goods, such as Fendi and Christian Dior,” said Rebecca Chesworth, said, senior equity strategist investor in the State Street SPDR ETF.

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“Consumers who enjoy the travel reopening are increasing sales of wine and spirits.”

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Many consumers are preparing for a sharp deterioration in the economy this winter.

For example, in the UK, a price cap on typical household energy bills is expected to rise from £1,277 ($1,552) earlier this year to more than £3,500 by October, while the cost of food is expected to rise 10% year-on-year. has increased. ,

This would put hundreds of thousands in financial trouble, unable to afford anything but the absolute basics.

Rachel Kofsky, International Senior Specialist at Christie’s Handbags & Accessories, poses with a piece titled “A Rare, Matte White Himalaya Niloticus Crocodile Birkin 25 with Palladium Hardware, Hermes, 2013”, from “Handbags Online: The London Edit”. displayed as part. At Christie’s in London, UK, November 18, 2021. Reuters/Tom Nicholson/File photo

Food and personal goods companies such as Nestle (NESN.S) and Unilever (ULVR.L) have been locked in tough negotiations with retailers since late last year, with supermarkets reluctant to raise prices of basic necessities and risk Struggling to get shoppers who split from. ,

Wei Lee, global chief investment strategist at BlackRock Investment Institute, said, “Not all companies (can raise prices), only companies that have pricing power that are doing relatively well — those that have dominant positions in their respective sectors — will be able to do so.” Reuters. “It is important to focus on quality players within the sector.”

While the savings of wealthy consumers are still being depleted by inflation, they are currently focused on enjoying the freedoms that have returned with the easing of COVID-19 restrictions.

British Airways owner IAG (ICAG.L) on Friday returned in profit for the first time since the pandemic, as more people flew into Europe between April and June. read more

“The comment suggesting further bookings shows no signs of weakness, supports the argument that travel demand still outweighs the impact of a living crisis,” said Matt Britzman, equity analyst at Hargreaves Lansdowne.

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IAG sales, mostly on booked trips from the UK, Spain and the United States, more than quadrupled in the first half of the year compared to the previous year, to 9.35 billion euros ($9.55 billion).

“We’ve accelerated the recovery (in travel retail),” Diageo CEO Ivan Menezes told analysts Thursday after the Don Julio tequila and Johnnie Walker whiskey maker beat full-year sales expectations. read more

To be sure, Menezes warned: “It’s probably two years and maybe a little longer, to get back to where we were.”

Europe’s lenders also offered some positive surprises on profits this week, but investors are watching for signs of a weakening economy, rising inflation and a war in Ukraine could dent their prospects.

Euro zone inflation hit another record high in July and its peak may still be months away, keeping pressure on the European Central Bank to opt for another major interest rate hike in September. read more

However, for now, French bank BNP Paribas (BNPP.PA) reported better-than-expected quarterly profit on Friday, as bad loan provisions eased and business boomed in both investment and retail banking. read more

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Reporting by Richa Naidu and Lucy Ratano in London, Mimosa Spencer in Paris Additional reporting by Kate Holton Editing by Mark Potter

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