Friday, August 18, 2017

Valuing Kering Through 'The Cult Of The Luxury Brand,' Part 2

In a recent article written for the investing site Seeking Alpha, I described how The Cult of the Luxury Brand, Radha Chadha and Paul Husband’s book on the luxury industry in Asia, could be used to predict the industry’s growth on that continent.

Since then, I have been using a model from that book, the "Spread of Luxury" model, to calculate the future growth of luxury conglomerates such as LVMH group and Compagnie Financière Richemont. LVMH, the owner of such brands as Louis Vuitton, Bulgari, and Marc Jacobs, is the world’s largest luxury goods company. I projected that the company would grow at around 4.6% per year for the next 33 years for a total annualized return of 5.24% taking into account dividends and changes in valuation. Similarly, I calculated that Richemont, the owner of such brands as Cartier, Dunhill, and Piaget, would grow at around 5.13% annually, for a total annual return of 5.76%.

Having calculated the future growth of LVMH and Richemont, I will now do the same with Kering SA. Along with LVMH and Richemont, Kering is the third of the three major luxury conglomerates profiled in Chadha and Husband’s book. Kering is also roughly tied with Richemont for the position of the world’s second largest luxury conglomerate. In my last article, I laid the groundwork for these calculations by estimating Kering's sales to customers from each of its major sales regions. In this one, I calculate how those sales will evolve and contribute to Kering's overall growth over the next several decades. (Read More)

Friday, August 11, 2017

Valuing Kering Through 'The Cult Of The Luxury Brand,' Part 1

In several recent articles, I have described how Paul Husband and Radha Chadha's book The Cult of the Luxury Brand offers us a model for estimating the growth of luxury goods companies in Asia.

That model, the “Spread of Luxury” model, describes how countries advance through several stages of luxury goods consumption. Each stage corresponds to not only a different level of economic development, but also a different level of consumption. Those stages range from “Start of Money,” in which few consumers purchase luxury goods, to “Way of Life,” in which a country’s luxury market is fully saturated. According to Chadha and Husband, the "Way of Life" stage is the end stage for Asian markets as they become fully developed.

I have applied this model to estimate the future growth of two of the world's largest luxury companies, LVMH group and Compagnie Financiere Richemont. I will now apply that model to Kering, the third of the three major luxury conglomerates profiled in Chadha and Husband's book and the owner of fashion brands such as Gucci and Yves Saint Laurent as well as sports brands such as Puma.

To do this, we first need to calculate where Kering's customers come from. This requires us to apply global trends in personal luxury goods sales to the company's sales around the world. Once we have done so, the next step is to predict the company's growth by forecasting the development of its per capita sales in each region. (Read More)