Since I bought Kering in early 2014, its main brand Gucci has transformed from a bland, logo-driven luxury brand to a young, exciting one. Unknown designer Alessandro Michele took over and revitalised the brand, making it younger, more colourful, and gender neutral. I don't understand any of this fashion crap, but sales are up double digits for the last 7 consecutive quarters:
Severed head at fashion show:
Collaboration with graffiti artist Gucci Ghost:
Handbags - the bread and butter of the industry - now with colourful prints:
Hard to know if the decision to sell was correct.
At a PE of 30, Kering is now reasonably expensive. But the trend is still up - both the stock price and fashion trends - and I cant see any sign of it stopping. Its easy to see the stock doubling again from here due to increased sales combined with operating leverage. OTOH, a lot of good news is already priced in. Fashions come and go. Trees don't grow to the sky. Especially for a company that sells handbags - its not the next Google or Facebook.
I chose to sell because of:
- Valuation
- The chart was going parabolic. Theres no real support to tell when the uptrend breaks.
- I want to lighten up on stocks near the end of the business cycle.
Someone once told me, even when a stock shoots up after you sell it, you should be happy for the guy who brought it from you. Because even if he makes money that you could've made, he's still taking a greater risk than you.
Inner peace.
3 comments:
Nice profit, but why did you buy in the first place if you don't understand brands?
Asking someone that knows brands better, she is saying that Balenciaga is the new black nowadays.
Hi GSP,
I understand luxury branding. Which is about having different brands at appropriate and consistent price points. Which means never putting items on sale. I bought Kering because it was the only luxury company trading a reasonable valuation years ago, and Gucci's branding was still OK. Was waiting for it to drop more so only got 1/2 a position.
I don't understand fashion. What makes something trendy, and it gets hotter and hotter, until everyone has it and no one wants it. Like the long term charts of Micheal Kors or Crocs for example. I've no idea when gucci's run will end, but it could last a couple of years.
Balenciaga is also a part of Kering, but a bit too small to contribute much.
Agree its almost impossible to understand how long a fashion trend lasts. For example danish Pandora looks very cheap now, if they keep being a popular brand. But as we all know, it might as well implode.
What I have been thinking is, if there is some alpha in talking to people that are really into fashion. For example these girls follow wechat groups with the latest trends. Maybe one can pick up, before the investor world, what is becoming hot, and actually get some alpha by jumping on these investments "early"..
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