To The Moon

Bad News. Burberry, Hugo Boss, Swatch Group and Richemont kicked off the first week of second-quarter earnings for the luxury fashion market with disappointing news for investors ahead of market’s highly anticipated results from (a) Kering, (b) LVMH and (c) Hermes, as luxury brands struggle to cope with declining sales in Asia. Burberry, Boss & Richemont. Burberry shares plunged more than -16% on Mon, 22 Jul 2024, while Hugo Boss shares dropped nearly -7.5% on Tue, 23 Jul 2024 after the companies issued renewed profit warnings for 2024 following second-quarter preliminary earnings showing around -40% plunges in operating profits YoY. Burberry and Hugo Boss have faced significant sales drops in Asia and the Americas, with Burberry’s Asia Pacific and Americas sales both decreasing -23% and Hugo Boss sales dipping around -3% for both geographies, preliminary earnings showed. A similar story played out in the preliminary earnings of Cartier parent Richemont, which has had a -27% drop in China sales (2024) and the Swatch Group—which owns Omega, Tissot, Longines and more—which reported an -11% decline in sales overall this year and significant declines in China sales. LVMH earnings will come 23 Jul 2024, followed by Gucci Parent Kering and Hermes earnings in the following days. LVMH Q2 Earnings. Just like Burberry, Hugo Boss, Richemont whose earnings have slumped for Q2 earnings, $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ sang a similar tune - unprofitable! Sales were 20.98 billion euros ($22.7 billion) in Q2 2024, compared with the 21.6 billion euros LSEG analysts were expecting. Sales in Asia (excluding Japan), fell -14% YoY in the second quarter. Compared to its first quarter sales that had declined -6.0% YoY, latest quarter loss is more severe & pronounced. Kering Q2 Earnings. Group sales were 4.5 billion euros ($4.87 billion) in Q2 2024. This was down -11% YoY as reported and on a comparable basis. What is worth mentioning is free cash flow (FCF) has decreased by -11.74% to EUR$1.887 billion. (see above) In contrast, net debt has increased by +16.67% to EUR$9.922 billion. With the world’s top two luxury conglomerates reporting weaker sales, it is not difficult to see why the S&P 500 Textiles Apparel & Luxury Goods Industry Index has slumped -31.26% YTD. Root Cause. After combing through a few fashion houses’ quarterly earnings, almost all attribute their disappointing results to a fall in Chinese demands. Luxury brands have looked to China for a big boost in sales, easily for the past 10 to 15 years; coinciding with the Chinese economy strong growth. (see below) The graph is demarcated at the 5%, 10% and 15% growth rate. This gives a clear depiction of the years when the Chinese economy was red hot. China's spending on luxury items went from half amount in 2008 to double in 2014; responsible for almost 16% of global luxury spending. Unfortunately, the world’s 2nd-largest economy fell short on growth estimates Mon, 15 Jul 2024., its GDP slowed to 4.7% YoY growth. Issues plaguing the Chinese economy: Plunging land sales. An aging population. Diminishing exports. In 2006, exports that constituted 36% of China’s GDP. By 2023, exports have fallen to 20% of gross domestic product. According to CNN, economists speculated the economic slowdown may be due to the “Middle Income Trap”. The theory described a high-growth countries in East Asia coming out of poverty that fail to reach high-income status due to: Dwindling supply of labor. Tapering exports. Inability to stimulate consumer appetite. Last November, during China's big shopping event, luxury brands like Burberry and Richemont had way more returns than usual. According to Bloomberg, so far in 2024, about 50% of all luxury goods bought in China get returned, a much higher rate than the average 30%. In June 2024, Chinese retailers of luxury brands marked down product prices up to 50% in a bid to boost diminishing consumer appetite. Changing of Guards. In September 2023, $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ lost the “Most valuable company in Europe” title to drug company — $Novo-Nordisk A/S(NVO)$, with a market valuation of $424.7 billion. As of July 2024, Novo Nordisk has risen in value to $461 billion with LVMH trailing at $375 billion. According to Reuters, the luxury sector has lost $200 billion in value in the past months, with LVMH taking the biggest hit. Exceptions. Truth be told, its not all doom and gloom for the Luxury industry, there were exceptions. Of the Top 5 Independent Luxury Conglomerates by market capitalization : (1) LVMH, (2) Kering, (3) Moncler, (4) Prada Group & (5) Richemont Trio - Hermes, Moncler and Prada Group reported profits in their second quarter earnings. Miu Miu was a complete outlier in the industry with +58% growth in 2023 and +90% YoY growth in the Q1 2024. Greatly boosting parent Prada Group’s sales up +17%. According to Vogue, Miu Miu’s performance is tied to its ability to resonate with customers in Asia and younger generations who applaud the fashion house’s buzzy pieces. Miuccia Prada and Raf Simons are both co-creative directors for Prada. My viewpoints: (mine only) Luxury although subjective, remains something people who love fashion will hope to own and possess. However, the definition of luxury has evolved over time. What used to be “unwritten standards” of unique & refine design from luxury fashion houses have evolved and given way to ”new standards” of common & uniform design. Perhaps this is the aesthetic of present generation, something that is foreign and eluded me. More importantly, the love of luxury will not diminish with time because it serves as aspiration for generations to attain. The only question remain — which luxury conglomerate will be able to thrive through the next decade ? Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks. VKTX : When "weight" Losing Is Winning. META: Boom or Bust on Friday, 26 July ? Techs on Sale: NVDA, TSLA, GOOG - Buy Now ? Goldman Sachs Warns - DON'T Buy The Dip ! - *** very recommended *** Do you think LVMH and Kering will be able to bounce back in earnings by Q3 ? Do you think you will invest in luxury conglomerates stocks ? If you find this post interesting, give it wings! ️ Repost and share the insights ? Do consider “Follow me” and get firsthand read of my daily new post. Thank you. @Daily_Discussion @TigerPM @TigerStars @Tiger_SG @TigerEvents