Finimize - 👜 Hermès versus Gucci

Luxury handbags at dawn | Brits are big spenders |

Hi Reader, here's what you need to know for February 21st in 3:11 minutes.

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Today's big stories

  1. Hermes gave a disappointing quarterly earnings update
  2. T. Rowe Price just laid out five key themes you can profit from this year – Read Now
  3. UK retail sales in January rose by their most in nine months



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.

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Analyst Take

How To Invest In This Year’s “Abnormal Normality”

How To Invest In This Year’s “Abnormal Normality”
Photo of Reda

Reda, Analyst

What’s Going On Here?

Every year, T. Rowe Price – a global investment giant that manages over $1.5 trillion – publishes a market outlook for the next 12 months.

And now that its outlook for 2022 has arrived, I thought it was worth looking into.

Because its team thinks five themes are going to dominate markets this year – one they’re describing as a period of “abnormal normality”.

Themes like slowing growth as supply finally catches up with demand, and a shifting backdrop as we go from “easy” to “tight” central bank policy.

So that’s today’s Insight: T. Rowe Price’s five themes for 2022, and how you can profit from them.

Read or listen to the Insight here


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What’s Going On Here?

Data out on Friday showed that UK retail sales rose by the most in nine months last month, and the country’s retailers didn’t even need to go to any effort to make it happen.

What Does This Mean?

Omicron might’ve spooked the UK over Christmas, but it’s been water off a duck’s back since then: Brits have been getting straight back to normal, and spending more on gas to get them from A to B. They’re still keen on home improvements too, with furniture sales rising by 17% and electrical appliance sales by 16% compared to the month before. All this helped drive retail sales almost 2% higher than in December – the most significant monthly uptick since last April, when non-essential stores reopened after the country’s third lockdown. It also means sales were almost 4% higher than they were before the pandemic in February 2020, so take that, Covid.

Why Should I Care?

Zooming in: Retailers play hard to get.
These strong numbers came despite the fact that retailers – whose costs have climbed significantly in the last year or so – couldn’t offer the same sprawling January discounts they normally do. And not only were shoppers not getting money off, they were actually paying a lot more than at the same time last year: data out last week showed UK consumer prices were 5.5% higher than in January 2021 – the biggest jump in 30 years.

The bigger picture: Rate hikes can’t stop, won’t stop.
The strength of this and recent jobs data might be enough to convince the Bank of England that the British economy can handle its third-straight interest rate hike next month. That’s arguably a good idea, given that inflation is still more than double the central bank’s 2% target, and upcoming energy price rises could only send it higher. Some investors even think it’ll raise rates by 0.5% – rather than its usual 0.25% – for the first time since 1997.

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💬 Quote of the day

“A bird doesn’t sing because it has an answer, it sings because it has a song.”

– Maya Angelou (an American poet, memoirist, and civil rights activist)
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🎯 On Our Radar

  1. Mary Shelley is old news. Cheesecake Factory is the true force behind Frankenstein.
  2. Shaq’s wealth generation secret. Never mind basketball: the man’s been investing in franchises.*
  3. Your tech is always waiting for you. That might not be a good thing.
  4. This decade’s pretty good so far. But it’s got nothing on the nineties.
  5. A whole country watched planes land on Friday. Trust the Brits to turn a storm into live entertainment.

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