What's going on?
Kering – owner of Gucci, among other brands – reported its half-year results on Thursday and, despite strong growth, the shares went crashing down by 8% on Friday.
What does this mean?
Gucci is Kering’s main girl – the luxury brand makes up over 75% of Kering’s profits – so investors tend to focus on its performance as a key barometer of how the company’s doing overall. The brand has been on fire recently, reporting over 35% revenue growth for the past 18 months as younger luxury consumers all over the world have wanted big, brash clothes with the famous double-G logo or Gucci’s trademark red and green stripes.
Why should I care?
For markets: Gucci’s expensive in every way.
Kering’s stock was close to being the most expensive it’s ever been – changing hands at a price over 20 times higher than the amount of profit the company generates per share (normally it’s closer to 15 times) – due to the company’s high profit margins and fast growth of late. So if growth slows or misses expectations (as it’s done here) then its shares are vulnerable to downward moves as investors question why they’re paying so much for them. Compare this to LVMH (owner of Louis Vuitton), which reported just 12% revenue growth on Tuesday (that’s about a third of Gucci’s) but saw its shares go up by 2%.
The bigger picture: Dark clouds may be looming over the luxury sector.
Chinese consumers are the kings of bling for the luxury sector. They make up over one third of total luxury industry revenue (tweet this) and account for most of the growth in the industry. Lots of luxury behemoths have all reported results recently (like Hermes and Moncler – maker of shiny puffer jackets) and all have seen strong growth continuing in China. However, uncertainty over trade wars could be a hindrance to future growth, both in China and elsewhere.