With a few exceptions, we have come to the end of the latest luxury earnings season, and it was not all doom and gloom. As the bar chart below displays, Prada and Hermès recorded strong double-digit revenue growth (blue bar) that exceeded market expectations (red dot) from June to September. Both organizations reported strong earnings growth across all geographical areas, including Asia, with Prada supported by 105 percent growth from Miu Miu. A range of brands, from Brunello Cucinelli to Ferrari and even Capri, also reported decent earnings growth, albeit below expectations.
On the downside, we saw much worse-than-expected results from Kering and Zegna. On the former, some analysts had hoped that Gucci’s string of quarters of negative revenue growth might hit a trough. However, Kering’s 16 percent decline was much worse than analyst expectations, with Gucci down about 25 percent.
Industry giant LVMH’s Q3 revenue growth was slightly worse than analyst expectations, but many commentators have looked at this as a leading indicator for the industry as a whole. Some of the commentary has forecasted that we are at the beginning of a much longer-than-usual downturn in luxury, particularly luxury fashion. The arguments have suggested that the downtown will be driven not just by slowing cyclical demand, but sharply slower structural demand as consumers have grown tired of luxury overexposure or perhaps have had enough of the aggressive price increases, or perhaps now want to spend put their luxury spending into travel and health and wellness rather than fashion.
Forecasting is always difficult so we will see. Yet, the Q3 earnings do not conclusively support this doom and gloom scenario. Many luxury brands, and not just those in the quiet luxury corner that has seemed to operate with its own rules of supply and demand over the past year or so, continue to show impressive growth. Maybe this growth is not at the rates seen in the supercycle that followed the pandemic and lifted most luxury boats (Kering excepted), but some regression to a mean does not presage an industry-wide depression.
A Threads post by Vogue Business editor-at-large Christina Binkley this week noted:
Rather than a luxury slowdown, I’d say RL, Hermès, and Prada/Miu Miu are taking market share from LVMH and Kering.
Earlier in the week, FSW discussed some reasons why we believe Miu Miu are performing well and it is worth reflecting on what other brands are doing to grab market share this year.
Investors have certainly seen cause to differentiate among luxury brands. The below line plot displays the 2024 evolution of selected luxury share prices along with our FSW Markets All Luxury Stock Index and, for benchmarking purposes, the S&P 500. Our FSW cap weighted index is down around 11 percent this year, which is sharply below the 25 plus percent gains in the S&P 500, a broad measure of stocks listed in New York. Yet, relatively high performers such as Prada have actually outperformed the S&P on a good year for the broad index while Hermès has provided strong returns.
