Buy This, Not That: A Luxury Retailer Back on the Runway

Shah Gilani|September 25, 2024

For the longest time, it was a tale of two economies…

Higher income bracket versus lower income brackets.

One spending as they wished… and one scraping by.

But the tide has shifted and those designer wallets and handbags have snapped shut.

Luxury retailers are seeing the slowest growth in two decades.

But the sector won’t be closing up shop. In fact… it’s the perfect time to look for bargains.

So in today’s Buy This, Not That, we look at two luxury brands to see which will be back on the runway in no time.

Click here or on the thumbnail below to dive in.

 

TRANSCRIPT

Hey, everybody. Shah Gilani with your weekly BTNT, as in Buy This, Not That.

Got a lot of questions about the consumer and a lot more questions from you guys about high-end consumption, i.e. the luxury goods sector.

There’s a bunch of names in there, but I’m going to hit two of them. And one’s a Buy, one’s Not.

Though even the one that’s a Buy is going to be a matter of timing and holding it because the luxury market is under pressure.

High-end consumers are trading down. Yes.

Global sales are off.

A wonderful analysis that I read the other day from HSBC’s head of global sales said that the luxury side of things is growing 2.8%. Now this analyst had knocked down the 2024 growth from 5.5% to 2.8%. And even then, she says, that’s a bit worrisome.

Here we are halfway through the year, and she’s already knocking down the estimates for the full year. Luxury goods are under pressure, and the stocks of the big luxury companies are all under pressure too.

But as far as that particular HSBC analyst’s outlook, she notes that if we see 2.8% growth in the luxury sector, that would be the lowest growth rate in more than two decades.

So things have slowed quickly for the luxury sector.

Not all products are on the shelf. Some of them are moving, but most of them are languishing. And part of it is about aspirational buyers. So a lot of the big names kind of went downward a little bit in terms of pricing to try and catch aspirational buyers, and that was pretty good for them, except the pandemic hit and people stopped buying everything.

And they decided, well, maybe we should cut prices more to get more aspirational buyers in. And then when everything exploded, they raised prices, raised prices really a lot. Some pocketbooks, for example, were up 50% to a 100% in a matter of two years. So instead of going down for the aspirational buyers, they went and gouged the guys and gals that have the money.

And now sales are slowing down. So they’re paying the price for being caught somewhere in between overpricing stuff and not trading down to the aspirational buyers, and the aspirational buyers are the ones that are having the hardest time.

So let’s take a look at both of them.

First one is Kering. The symbol for Kering is PPRUY. You probably don’t know Kering, but it’s essentially a holding company. It’s based in Paris, and some of the brands, well, you’ll likely know pretty much all the brands.

The biggest brand, Gucci, is a huge part of their revenue.

Others include Saint Laurent, Bottega Veneta, Balenciaga, Brioni for you guys out there. And as far as jewelry, they got Boucheron, they got DoDo. They make the eyewear for Montblanc, for Dunhill, for Puma also. So they have a heck of an eyewear business.

So they’re developing a beauty side, part a subsidiary also. They’re going to go more into beauty and cosmetics. So they’re really expanding, but, again, they’re having a hard time. And this is just as far as PPRUY, as far as Kering goes, if you look at a graph, people, it’s just downright ugly. So let me pull up the graph for you, and you can see what I mean.

So this is not a Buy.

I know for those of you who like to go bottom fishing, myself included, you might look at something like, carrying and say, you know, it’s got a lot of great brands, but the stock has just been a mess. And if you look at it on a three-year basis, why would you buy that stock? So Kering, as far as luxury goods go, PPRUY, no. It’s not a buy.

On the other hand, the buy right now, because I’d rather bottom fish on this one, is Louis Vuitton, Moet, Hennessy: LVMH (LVMUY).

Now LVMUY, you guys know the brands. You certainly know Louis Vuitton. So I’m going to give you a one year look at that. It’s down.

So to me, yeah, we it started to make a little bit of a move up. Had a good day yesterday up 4.5%. I’d rather go bottom fishing here in Louis Vuitton. And one of the reasons is because they have alcohol.

They have a lot of fantastic brands. Their brands across the spectrum are are well known. So just to give you a heads up on some of the brands, Dom Perignon, Ruinart, Moet & Chandon, Hennessy, Veuve Clicquot, on and on and on. Glenmorangie, Krug, Chandon, and they have plenty of others too.

Cloudybay. They got Belvedere.

They got a lot of great alcohol. So I like if the economy slows down. People are still going to drink. They going drink the highest stuff? Not as much, but I like the liquid component. As far as some of their other brands, you know what they are. Obviously, Louis Vuitton, everybody knows that name.

But they have Fendi, Christian Dior, Emilio Pucci, Givenchy, Kenzo, Marc Jacobs. They got a lot of stuff, and they also own Tiffany’s, people. They have jewelry. They get Tag Heuer watches, Zenith, Bvlgari, Fred, Hublot.

They just have everything, they make yachts.

It’s custom yachts. So, yes, LVMH, Louis Vuitton Moet Hennessy, is the biggest name in luxury business. It certainly dwarfs Kering, with a capitalization of $330 billion-plus versus Kering’s something like $18.5 billion. And the profit margins are much better at Louis Vuitton.

Kering profit margin, we’re looking about 11.25%, whereas when you look at Louis Vuitton, the profit margin there is closer to 17%. It’s about 16.5%. So if you’re going to play the luxury goods sector, play the one I think that has gotten beaten up. They both gotten beaten up.

But Louis Vuitton, Moet Hennessy, LVMUY, is a better buy down here for longer term. It’s going to be a bit of a hold, but if you’re going to pick your luxury brand, go with LVMH.

I’ll catch you guys next week. Cheers.