The earnings season for luxury delivered a lot of news today with Gucci, Ralph Lauren, Tapestry, and Tapestry’s target Capri all coming to the market with results.
As we reported earlier in the week, the market expected another poor outcome from Kering for its full year 2023 results and the results were not good but not as bad as consensus expected. François Pinault announced that revenue was down 4 percent in 2023 from 2022 levels, driven by declines across all of its major maisons (Kering, 51% of revenues, down 4%; Saint Laurent, 17% of revenues, down 5%; Bottega Veneta, 9% of revenues, down 4%). Only Kering Eyewear (5.5% of revenues), which principally has a wholesale distribution model, was up on the year at 7%. These results look pretty ugly when compared to industry giant LVHM, which reported a 8.8% increase in 2023 revenues last month.
The market is hoping that we may have reached trough Kering, particularly Gucci, as a flurry of management reshuffles and creation direction resets over the past year yields results. In addition, the group made a number of large real estate investments in 2023 (including a 25,000-square-foot space for a new Paris flagship at 235 Saint-Honoré and 12-14 Rue Castiglione) and acquisitions (Creed and Maui Jim) which pushed down free cash flow by 40 percent and raised net debt by 6.2 billion Euros but hopefully laid the groundwork for a rebound.
In the Q&A session, Kering management confirmed that they plan to target wealthier consumers to power a return to growth and pointed out that macroeconomic headwinds had negatively impacted aspirational consumers and helped pull down Gucci sales in 2023.
In contrast, two of America’s largest luxury houses came in strong. Ralph Lauren – reporting Q3 results for its FY24 – announced annual revenues had jumped 6 percent, as strong growth in Asia (16% growth) and Europe (11%) offset flat growth in North America. Tapestry (home to Coach, Kate Spade, and Stuart Weitzman) also reported positive, though more modest, growth of 3% for its Q2 with again growth in Asia and Europe compensating for stagnating growth in North America. Tapestry’s takeover target, Capri and its brands Versace, Jimmy Choo, and Michael Kors, met analysts’ expectations for poor growth with FY23 revenue down 6 percent from 2022 and forecasts for almost unchanged revenue growth in FY24.
Stock prices for Ralph Lauren and Tapestry surged by 16.8 percent and 6.5 percent, respectively, on the day, making them the top performing firms in the FSW High Frequency Luxury Monitor All-Luxury Index. With P/E (NTM) ratios of 13.7x and 9.3x, RL and Tapestry looks like good buys. By comparison, Hermès trades at 50.3x and LVMH at 24.7x.