Short and sweet post today — we’ll give Fletchers and the usual “naughty corner” companies a break and move over to Europe, where Kering, the fashion conglomerate, continues to be mispriced.
Why Kering might be looking at a turnaround…
I know I talk about fashion a lot here, but it’s fashion week in Paris and the most important takeaway — from not just Paris but Milan, too, is that Kering houses are having something of a renaissance. Saint Laurent was attended by Kate Moss and Gwyneth, while Lily Collins has been wearing Saint Laurent habitually too…see below…(doesn’t she look like Heburn?!)… I don’t like or “get” Emily in Paris, the show, but there’s no denying its popularity…
By the way — over in Milan, Bottega put on one of the best shows of the season, in my opinion. It felt full of fun and whimsy in the best possible way — maximalism without trying too hard.
I have written to you all before that Kering’s majority shareholder, Pinault, recently purchased the talent agency CAA. You might wonder — who is Lily Collins’ agency? And the answer, of course, is CAA. The “synergies” are real.
Which brings me to Kering. Kering has been down in the dumps lately. We all know why — Gucci. And frankly, I still don’t think Sabato has “it”. The clothes are wearable — but you kind of think, well, wearable isn’t quite enough when you are helming a $10bn+ in revenue a year empire.
And yet those smaller houses — like Bottega and Saint Laurent — feel vital and fresh. They have the right people wearing them. They are, in short, interpreting the Zeitgeist correctly. Anyway — Kering. It’s had an awful run. Note my very technical analysis below:
That stock is only going one way — down! All the way to the fiery pits of hell.
A few things in Kering’s favour (note it is trading at 13x current earnings, about 18x fwd).
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China just unleashed a whole lot of stimmy — the China stimmy fire hydrant is on! Chinese luxury consumption is a big driver of sales (esp Balenciaga, etc).
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The US is cutting rates — we are still approaching max stupid. I was talking about this today with Dylan, my resident wizard. I was like — the US cutting rates another 50 bps is stupid! He was like — well, it’s an election year. I wouldn’t be surprised if people got even more excited about AI and stocks that thrive on low interest rates go to even higher levels. I still think a recession is inevitable, but I also think people’s capacity to be stupid is endless. Luxury stocks benefit from an anticipated low interest rate environment as people expect there will be more spending.
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Here is what the market is currently pricing in for the next rate cut. Do I think another 50 bps cut is pure and unabated lunacy? Yes. Do I think it’s possible? Yes.
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Kering is already trading well below peers. LVMH is around 20x earnings, etc. Hermes, of course, still trades at a wildly high multiple. I like a margin of safety — and there is an enormous margin of safety here, because you have a collection of luxury houses trading like they are a discount retailer in Ohio. You can charge a lot higher margin for a bag from Bottega than say, what a discount retailer in Ohio can charge.
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The right people are wearing Kering labels, because Pinault owns CAA via his family office. You know, you want the following crowd wearing your clothes (photo from Saint Laurent show):
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All this makes an interesting enviroment to buy Kering. The risk, of course, is Gucci, which still needs straightening out. I suspect Sabato won’t last — his clothes are too pedestrian.
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My favourite quote: price is what you pay — value is what you get.
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Another quote — a good investment idea is one where everyone agrees with you a year later.