Luxury stocks now know how the other half lives.
Shares of companies that cater to the upper crust, including Tiffany, tif Saks, sks Morton's mrt, Sotheby's bid and Wynn Resorts wynn, are getting the silver spoons taken out of their mouths by investors worried that even the super rich are closing their wallets.
In a year when stocks in general, measured by the Standard & Poor's 500 index, are down 41%, the luxury players are down even more. Saks' stock is down 81%, Sotheby's, 79%, and Tiffany's, 51%. That's quite a change from a year ago, when luxury companies were viewed as being immune from the downturn because their customers didn't have subprime loans. But now, the wealthiest consumers are beginning to feel the pressure as their portfolios shrivel and jobs in the financial sector vanish in a reverse wealth effect.
"Higher-income consumers are worried about their wealth and income," says David Schick, a Tiffany analyst at Stifel Nicolaus. And wealth and income are "two reasons why consumers are comfortable buying large-ticket items."
Companies that serve well-heeled investors are feeling pain because of:
•Stock market losses. Spending on luxury goods tends to move with the stock market, says Jeff Mintz of Wedbush Morgan. He follows True Religion, which sells jeans costing $200 and up. Its shares, which were up 49% for 2008 in September, now are down 46% for the year.
•Implosion of the financial industry. Highly paid members of New York's financial industry were big contributors to the luxury segment, including Tiffany's, Schick says. Many of those jobs have been eliminated.
•Uncertainty of when things will improve. Wynn Resorts has long been the bright spot among casino operators in Las Vegas. Shares of Wynn hit record highs in October 2007, even as investors dumped shares of its rivals. Now, though, Wynn's shares are down 61% for 2008, which, while better than the 80%-plus losses of rivals, is a sign the luxury segment is getting hit, too, says Jeffrey Logsdon of BMO Capital. "Everyone is feeling it," he says. High-end consumers are postponing Vegas trips, spending less if they go or canceling plans completely, he says.
Analysts don't expect the rich to get comfortable with spending freely for some time. "We understand how bad things are," Schick says. "We just don't know how long it stays bad."