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Christian Dior: The Moat Is Too Expensive

Summary

Christian Dior is a luxury powerhouse that shows no signs of weakness despite an unfavorable economic environment.

The company's brands, scale advantage and geographical diversification created a big moat around the business.

Despite the moat, the company looks expensive at the current price.

Christian Dior (OTC:CHDRF) (OTCPK:CHDRY) is a name that doesn't need long introductions. In this article I will tell you what I think about the company's moat and its current valuation.

First, a quick introduction. Christian Dior is one of the most famous names in the Fashion industry. Founded in 1946, the company markets a wide range of products, such as apparel, footwear, jewelry, eyewear, perfumes, accessories and wines.

Before discussing the characteristics of the company, I think we should understand the general context in which Dior and basically the entire fashion industry are currently operating. The industry has been suffering for a while, together with the retail industry, because of a mix of factors, including unfavorable macroeconomic conditions in the emerging markets and declining tourism in the developed economies.

The Chinese economic slowdown and the recessionary environment in several emerging countries such as Brazil and Russia, worsened by low commodity prices, have lead to stagnating/declining sales for many fashion companies. Moreover, the consequential appreciation of the US dollar made less convenient for foreigners to travel to North America, reducing the amount of spending coming from tourists in the region. At the same time, frequent terrorist attacks in Europe have been a drag on tourism in both Europe and North America.

All these factors contributed to fuel a big correction in fashion and retail stocks, and not even the best names were immune to the general decline, including Christian Dior, despite the company's sales continued to grow.

After reaching a top in August 2015 at €195, the stock fell by 32% to reach a bottom at €133. It is now trading around €168, which is still 14% below the top reached in August 2015.

Some quick clarifications. Christian Dior reports six divisions, its own and five from LVMH, as it owns a 42% stake in Moët Hennessy Louis Vuitton SE, better known as LVMH (OTCPK:LVMHF) (OTCPK:LVMUY). Anything that affects LVMH will...


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