Taking Fashion’s Temperature Through Its Stock Prices
by Eugene Rabkin
"New York, USA - It’s August, the lull before the storm of the fashion month that will start in early September in New York and will end in early October in Paris. The fashion industry is pretty much ground to a halt, with most people on vacation, except those in PR who are starting to gear up for the shows. It’s a good time to take a look around and see how fashion is doing in business terms. It’s a good reality check exercise in the industry where everything is always amazing until you go out of business. But business people are less impressed by a cut of your dress than by your revenues, so it pays to look at the numbers. And yes, I know that you just want to look at pretty pictures on Instagram, but sometimes you have to eat your vegetables, too. I’ve dusted off my finance degree for this and did some looking around, and things are looking decidedly mixed.
First, let’s address the retail side of the business. The elephant in the room here is FarFetch (stock ticker: FTCH), a retail aggregator for designer fashion boutiques, which went public last September, and whose stock is down 70% from its high of $30. This is due to a couple of factors - namely its dismal last quarter results that has widened its loss (the company has not turned a profit since inception) and its acquisition of New Guards, the parent company of Off-White and Palm Angels, for a cool $675 million. The latter seems to tell me that FarFetch is looking for new revenue streams. This often happens when a company is not convinced that its core business will make enough money down the line. It doesn’t mean that it’s all over for FarFetch - online retail is still a fast growing market, but pretty much all analysts have slashed their target prices by half, even those maintaining the stock at “outperform.” The icing on the bitter cake is that The Schall Law Firm, that litigates on behalf of disgruntled shareholders, has started a legal probe to see whether FarFetch has misrepresented the company structure and mission at the time of its listing.
Another retail practice that’s all the rage now, according to fashion news, is buying second-hand designer clothes. One of the biggest players here is The Real Real (REAL), another startup that has yet to turn a profit. Regardless, it went public on May 31st of this year at $20, quickly shooting up to almost $29. Today though, its price hovers below $17, a roughly 60% drop from the high. And even though the company reported a 51% revenue growth compared to last year, clearly Wall Street is not impressed.
This is the demand side, but what about the makers of fashion? Here, things are all over the place. Capri Holdings Company (CPRI), the parent company of Michael Kors, Versace, and Jimmy Choo, and incorporated in the British Virgin Island, a notorious tax haven, currently trades at around $28, roughly 65% down from its 52-week high. The company has continually taken a beating this year due to declining sales at Michael Kors and Kate Spade. The recently acquired Versace brand is the company’s one remaining bright spot."
Full article on SZ-Mag
