The latest batch of earnings reports from the luxury giants were showstoppers — with stunning double-digit gains from Kering, the owner of Gucci, versus no growth from Burberry.
The polarised results raise the question – is it time for the luxury sector to move on from a tale of woe after the crackdown on Chinese consumption and the weak global growth which destroyed sales in recent quarters?
Standout performer Kering has been revamping its core brands – a tactic that has more than paid off with Gucci’s comparable revenue soaring 17 per cent and Yves Saint Laurent’s up by a staggering 33 per cent in the third quarter.
This compares to an underwhelming first-half report card from Burberry with no underlying growth — the only sexy movement coming from a significant drop in sterling.
The results indicate the same old macro themes may no longer be the thread investors should focus on, and what is moving the needle is good, old-fashioned retailing: Strong brand marketing, good product lines, distribution channels and cost discipline.
In its earnings release last week, Italian luxury company Tod’s painted a picture of a “volatile and uncertain economic and financial environment”, pointing to “persistent weakness of consumption in many important markets for luxury goods”.
Meanwhile British fashion group Burberry continued to blame macro drivers for its ugly set of numbers, citing slowing spending from Chinese customers globally and an uneven performance from the U.S.
But the commentary jars. French giant LVMH said both the U.S. and Europe had positive momentum while Asia Pacific ex Japan accelerated. LVMH wasn’t alone, Kering said Europe was growing but specifically noted a significant pick up in the U.S. and Asia. The weak spot for both was Japan.
This begs the question, is a macro spiral being unfairly blamed for weak results? If the macro is just an excuse, it means bottom-up stock selectors may be able to extract more value from the sector.
What luxury brands need to do is become more sophisticated.