Description
Hermes has been a bulletproof rocketship for too long. My thesis is that the tides are turning and there are headwinds in all relevant geographies. Specifically:
1) China has cracked down on high pay and flaunting wealth
2) Europe is in economic turmoil and Russia's oligarchs are pariahs
3) Japanese yen is collapsing
4) US stimulus is cycling
In general, as global inequality grows and economic stability falters, it is less desirable to be seen as super-wealthy. When the pitchforks come out, they are pointing at the Birkin bags! Additionally, buying a $15,000 handbag as people are freezing to death in Ukraine is kind of a bad look.
Additionally, global wealth effects are all negative-- bonds, equities, and real estate are all in decline. Tax rates are going up and inflation is eating into purchasing power. In general, the wealthy are feeling less wealthy.
Covid/stimulus demand drove huge YOY increases in jewelry and watches. This has started to go negative and the headwinds will continue.
The growth of the resale market effectively provides competition for the company's Kelly and Birkin handbags. Even the Kardashians are reselling their loot!
Margins are at record highs, and pricing has started to alienate consumers:
https://www.youtube.com/watch?app=desktop&v=YqG26RgTcck
"They are pricing themselves out of the market"
Huge P/E premium to competitors and its historical level ostensibly due to a flight to safety, but now trading in excess of most sell-side price targets
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
mean reversion
earnings disappoint in '23