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magazineJimmy Choo’s on the front foot
High-end shoemaker Jimmy Choo (CHOO) remains on the front foot despite difficult luxury market conditions and enters the Christmas selling period with momentum at its heels. A positive January trading update could renew interest in this quality retail growth stock.
Well-heeled winner
Co-founded in 1996 by one-time Vogue accessories editor Tamara Mellon and its eponymous couture shoemaker, the company offers a compelling combination of brand strength, pricing power, high cash conversion and global growth potential.
The £500m cap has an expanding store footprint, high-end footwear selling through prestigious department and specialty stores worldwide and is stretching its iconic brand into handbags, fragrance, eyewear and men’s shoes.
We are excited by Jimmy Choo’s global growth potential. Brand awareness is rising in Asia, where well-heeled shoppers have great affection for all things British. More established luxury players with wide store footprints are seeing falling sales and margin compression but Jimmy Choo leads in luxury shoes, one of the best performing areas of luxury, and the brand remains under-penetrated in China’s Tier 1 cities.
Walking tall
Confounding gloomy expectations, Jimmy Choo’s latest trading update (18 Nov) indicated a return to like-for-like sales growth in the second half, despite disruption from store conversions. Management reported improved retail trading across all regions with continuing strength in China and bumper appetite for its 20th anniversary collections.
Jimmy Choo is on course for another record year. Sterling depreciation is supporting strong sales to luxury tourists from a London-centric store base.
With sterling remaining weak and the capital seeing strong growth in shoppers, investors could expect an excellent Christmas performance supported by festive gifting by Chinese, Middle Eastern and US visitors.
For the year to December 2016, Liberum forecasts improved pre-tax profit of £31.4m (2015: £24.5m) for earnings per share of 6.4p, rising to £36m and 7.3p of earnings in 2017.
The potential for earnings upgrades is significant. Generating the bulk of revenues away from UK shores, the red carpet favourite is geared into weak sterling. Overseas sales and earnings are more valuable on translation back into pounds. Strong cash generation is also helping Jimmy Choo to deleverage, with falling borrowings offering another share price catalyst.
Jimmy Choo (CHOO) 133p
Stop loss: 106.4p
Market value: £500m
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