(Source: Bloomberg)

A weaker Euro is helping boost European companies' earnings as their foreign revenues are worth more in home currency terms. The trend will benefit European luxury houses as well as German auto makers, report Bloomberg and The Wall Street Journal, respectively.

CA Cheuvreux analyst Thomas Mesmin estimates that for every 1 per cent decline in exchange rates, the luxury industry's average earnings before interest and taxes may rise 1.3-1.5 per cent, according to Bloomberg.

"This will help luxury-goods companies, because a high proportion of their sales come from outside Europe, while their cost bases are in Euros, Swiss francs or the British pound, said Mesmin.

Morgan Stanley estimates that each further 10-cent drop in the Euro against the U.S. dollar could add around 8% to BMW's and around 6% to Daimler's 2013 earnings.

Salvatore Ferragamo CEO Michele Norsa also told Bloomberg last week that a weak euro would strengthen her business and boost its margins.

The weaker euro also boosts the spending power of travellers holding stronger currencies, many of whom are taking their shopping sprees to Europe.

"Intra-regional travel and international travel remain key to the success of luxury brands," Goldman Sachs analyst Will Hutchings said in a report in November last year.

(Posted 23 Jan 2012)