What’s Going On Here?Hermès posted weaker-than-expected quarterly results on Friday, probably because no one’s made a biopic about its salacious history yet. What Does This Mean?When a $9,000 Birkin bag takes an average of 15 hours to make, there are only so many that Hermès can churn out on any given day. That’s made keeping up with demand tricky, which is why sales from the luxury giant’s leather goods and saddlery division – which makes up nearly half its total revenue, because rich people need saddles – fell 5% compared to the same time in 2020 (excluding the effect of currency swings).
So to make sure this doesn’t happen again, Hermès said it’s planning to open new production sites by 2024, in hopes of manufacturing around 7% more leather goods every year. But even that was a downgrade from a previous target, and unimpressed investors sent the luxury player’s stock down 8%. Why Should I Care?The bigger picture: At least Kering’s fine.
Hermès’s misfortune doesn’t speak to the rest of the industry, with Kering’s share price climbing 8% following its own earnings update late last week. The company said that the release of a new Gucci collection and the hit movie House of Gucci brought more attention to its flagship brand last quarter, helping the segment’s revenue rise by a much better-than-expected 32% (tweet this). And since Gucci makes up nearly 60% of Kering’s total revenue, that helped overall revenue beat expectations too. As for costs, there was only one: inflicting Jared Leto’s Italian accent on the world.
Zooming out: Hold my digital bag.
There could be another way for Hermès to generate some extra income: Morgan Stanley thinks luxury-branded NFTs could become a $56 billion market by 2030, as well as make up as much as 7% of luxury companies’ revenue by then. And since digital bags cost a lot less than real ones to produce, they’d give Hermès’s profit a much bigger boost too. | 