The China-owned luxury company’s shares have gyrated wildly since completion of its SPAC listing in mid-December, losing more than half their value at one point

Key Takeaways:

  • Big volatility in Lanvin’s shares since its SPAC listing last month reflects the many uncertainties hanging over the company
  • The volatility is likely to continue until some of the uncertainties become clearer, including the state of China’s luxury market and financial condition of Lavin’s struggling Chinese parent

By Doug Young

Once investor darlings, luxury goods companies with an emphasis on China have become just the opposite these days. Last week we reported on the latest woes at Secoo (SECO.US), whose stock once soared on its billing as China’s biggest luxury e-commerce company, but now trades at a tiny fraction of its IPO price. Now, the newly listed Lanvin Group Holdings Ltd. (LVN.US) is suffering a similar fate following its mid-December trading debut.

Lanvin’s shares have been all over the map since it completed its backdoor listing using a special purpose acquisition company (SPAC) and began trading under the LANV symbol on Dec. 16. Its shares closed that day at $10, the same as the January 2021 IPO price for its SPAC acquirer, Primavera Capital Acquisition Corp.

The stock then moved steadily downward, losing more than half its value five days later when it closed at $4.51. But then it staged a comeback over the next four days and returned to as high as $9.12, before sagging again to its latest close of $6.10. The huge volatility isn’t completely unexpected for such a newcomer, since Lanvin has only given out limited financial data so far and probably won’t give its first complete financial report until February or March.

But the huge volatility also probably reflects investor ambivalence about Lanvin’s story that is heavily tied to China, a former luxury goods rising star that has fallen on hard times due to strict pandemic controls that have killed consumption. Somewhat ironically, Lanvin’s latest plunge comes just as China finally reopened its borders on Sunday after nearly three years of near closure.

Perhaps some are now worried that Chinese consumers will embark on a wave of “revenge international luxury spending” in other countries now that they can travel freely again. But truth be told, increased spending by Chinese consumers anywhere should benefit Lanvin, which is Chinese-owned but whose brands are all western.

The company is the baby of Chinese financial conglomerate Fosun, whose Hong Kong-listed Fosun International (0656.HK) owns 65% of Lanvin’s shares after the SPAC merger. The company owns five major brands acquired by Fosun over the last few years. Besides Lanvin, those include Austrian skinwear brand Wolford; Italian luxury shoemaker Sergio Rossi; American womenswear brand St. John Knits; and Italian menswear maker Caruso.

Of the five brands, Lanvin accounted for about a third of the company’s sales in the first half of this year, while Wolford was the second largest contributor with about one-quarter of the total. The company posted 202 million euros ($215 million) in revenue in the first half of last year, up 73% from a year earlier, on strong growth in Europe and North America.

Lanvin is losing money, though it hasn’t disclosed the size of its losses in the limited financial materials provided to date. Chairman Joann Cheng has promised to break even by sometime next year.

Problematic China

Fosun is a big proponent of a strategy of bringing big global brands to China to tap local demand for world-class names. Its Fosun Tourism (1992.HK) had such a goal in mind with its 2015 acquisition of Club Med, aiming to bring the French company’s signature resorts to China. It also acquired the renowned Cirque de Soleil performance franchise with a similar aim. The records for both of those companies in China have been spotty at best, in no small part because of China’s strict pandemic control measures that have discouraged travel and killed consumer demand for this kind of leisure spending over the last three years.

That said, one would think China’s lifting of most restrictions starting in early December might provide a lift to stocks like Lanvin on hopes for a new wave of Chinese spending. But the huge gyration in Lanvin’s stock seems to indicate investors are still undecided.

Prior to completion of its SPAC merger, Fosun estimated Lanvin’s valuation at $1 billion in November, revising the figure down from a previous $1.25 billion on factors including currency depreciation and valuation of its peers. At its latest close, the company is worth about $800 million, far less than the earlier forecasts.

The latest close also values Lanvin well below other big global names. Its current price-to-sales (P/S) ratio stands at just 1.9, compared with a 3.1 for Kering (KER.PA) and 4.8 for LVMH (MC.PA). Part of the discount probably owes to Lanvin’s loss-making status, since the other two companies are both quite profitable. Another concern could stem from financial woes for Lanvin parent Fosun, which is currently struggling under a huge debt load and could be in danger of default.

Then there’s also the China luxury market, which we’ve noted several times already is struggling these days. The country was once the star of an annual global luxury goods report from Bain, thanks to Chinese consumers’ healthy appetite for expensive handbags, luxury watches and other such goods. But in the report’s 2022 edition, Bain noted that while China remains crucial to the market over the long-term, it “continues to confront a challenging phase due to Covid lockdowns and is still performing below 2021 figures.”

Greater China accounted for just 14% of Lanvin’s total revenue in 2021 – well below the 21% of the global luxury goods market that China accounted for that year, according to Bain. Part of the investor skepticism could owe to the fact that most of Lanvin’s brands are a bit second-tier, giving them more limited growth potential than premium ones like Gucci and Louis Vuitton.

At the end of the day, the newly listed Lanvin is still very much a work in progress and investors are probably trying to figure out how the company could develop over the mid- to longer-term. That’s reflected in the stock’s schizophrenia during its first three trading weeks, which show the company needs to provide more data and better articulate its vision for the future before the shares can stabilize. Investors will also be watching to see how China’s luxury consumption rebounds, and how Fosun’s debt situation evolves.

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