Luxury women's footwear retailer Jimmy Choo (CHOO) walks tall with a 14.6% gain at 110p, investors relieved by the reassuring tenor of its first quarter update. The red carpet favourite has 'made a good start to the year', its iconic brand showing resilience in a difficult market.
Storms continue to batter the luxury sector, as demonstrated by the difficulties facing Burberry (BRBY), which alongside the Brexit fears weighing on the wider stock market, have hit Jimmy Choo's share price hard. Yet investors like the tone of the AGM update from the ladies' shoe designer, which has also stretched its iconic brand into handbags, scarves, fragrances and men's shoes.
Indeed, management is comfortable with the full-year consensus pre-tax profit estimate of £32 million, which would represent impressive year-on-year growth of 27% and suggests shares in Jimmy Choo are pricing in too much pessimism.
In a note entitled 'No crisis', broker Liberum has upgraded its rating from 'hold' to 'buy', leaving its price target unchanged at 135p. Analyst Tom Gadsby writes: 'Choo’s Q1 update is timely as the shares have been hit by wider market concerns over the decline in luxury spending as seen across the peer group, including Burberry (BRBY), Ralph Lauren (RL:N) and Hugo Boss (BOSSN:DE). Like-for-like sales amongst the peers have been down mid-single digit in recent reporting. It is therefore welcome that management has provided comfort that the company is on track to meet full-year forecasts.'
Guided by CEO Pierre Denis, Jimmy Choo insists its 'successful growth strategy continues to deliver'. This involves the controlled expansion and development of the retail portfolio as well as the introduction of new designs and collections from creative director Sandra Choi (pictured below).
Significantly, chairman Peter Harf also comments: 'The company's growth remains on track, including in Asia. Brand awareness continues to grow strongly and particularly in China where the brand remains under-penetrated.'
This point is echoed by Gadsby, who explains 'the brand has a firm foothold in Greater China but unlike the industry is not present in Tier 2 and Tier 3 cities where many others are struggling with too much space in the wrong locations. The opposite is the case for Choo as under representation in Tier 1 cities means it could double its Chinese exposure over the next four years.'
RBC Capital Markets, which has a 160p price target, believes Jimmy Choo is outperforming luxury footwear peers including Salvatore Ferragamo (SFER:MI) and Tod's (TOD:MI).
Co-founded in 1996 by one-time Vogue accessories editor Tamara Mellon and its eponymous couture shoemaker, Jimmy Choo has a compelling combination of brand strength, pricing power and international growth potential, as well as a proven track record of consistent growth and high cash conversion.
In some other positive news, Jimmy Choo guides towards further debt reduction in the second half of the year, as its focus on improving operating efficiency and managing costs means it is 'on track to deliver margin improvement and good cash generation'.