Hello and welcome to Fashion People. I'm the Sherman writer of Cutts Fashion and Beauty Memo Line Sheet. And today with me on the show is Bernstein analyst Luca Solka. We're discussing the state of the luxury industry in 2026. Happy Tuesday, everyone. By the time you listen to this, I will hopefully be on a plane to Milan or in Milan. I don't think you should listen to this if it's like seven weeks from now. I'd say stop right now. It won't make any sense, but it is a very exciting week here in the present. Fendi, Marnie, and of course, Gucci debuts. Second acts from Jill Sander and Bottega Veneta and Prada always. I like Milan because there's a very clear story that unfolds. Paris is much more complicated and unwieldy and exhausting emotionally and physically. Anyway, in Monday's at brand ambassadorship mania leading up to the Oscars. What it means, is there a bubble? What is the value, et cetera? Do celebrities actually sell clothes for people or handbags or shoes or whatever? I try to answer those questions. I also watched Love Story, the Ryan Murphy show, so you didn't have to, but in the end, I highly recommend that you do. It's very good, and it gets the fashion industry right more than wrong, I'd say. and it's just interesting how they pulled it off given all the sort of hullabaloo around the costumes to start but I don't know it's a it's like a great network tv show really well done I'm only four episodes in I never finished a Ryan Murphy show because they always drop off at the end so I'm like really hoping it's great but I'll do more reporting on what went on behind the scenes in terms of the the costumes but also like getting the office right at Calvin which I've heard they really, really nailed. And also Calvin Klein, Alessandro Navola is honestly one of the best parts of the show. I really adore him. He's super good. But anyway, I also wanted to give a big shout out to Line Sheet's newest contributor, Malik Morris, who joined Puck this week. His first story is about what's happening at Essence post-bankruptcy. He has all the details, all the reporting he can't get anywhere else. He's been killing me, totally beating me on this Essence story so so happy the first thing when we sat down for lunch I was like first story you gotta you gotta get on that essence stuff so you're welcome I'm so excited to have him and you can read that in Tuesday's issue and also I've known Malik since before he was a reporter so it's just really fun to to be able to bring him to puck I've wanted to for a long time and and now the timing was bright so enjoy it and let's get going with Buka Luca Solca, welcome back to Fashion People. Thank you very much indeed, Lauren. Did you watch the BAFTAs last night or did you see the outfits from the BAFTAs? Do you have any best dressed? No, I wasn't. I was traveling from Geneva to Milan to be here. And I just managed to get a glimpse of the closing ceremony of the Olympic Games. So no BAFTA for me last night. I guess that's more culturally relevant. Did you see it in person? No, no. I just got a glimpse on TV. I was in Milan. The closing ceremony was in the Verona Arena. Oh, yeah. It was very sort of scenic. Very nice. Very nice. I'll have to watch it. I also didn't watch the BAFTAs, but I did look at the clothes afterwards. And they actually, it does kind of ladder back to our conversation because it was mostly clothes made by people or brands or companies we're going to talk about today. But I will say my favorite was actually Kirsten Dunst in Valentino, which she's been wearing almost exclusively and is still a private company for now. Someday soon, it probably won't be. It'll be part of our conversation. But it's nice to see how well they're doing on the red carpet because it's just, it's such a money game now. It's basically just Vuitton, Chanel and Dior. Oh, yeah. I imagine. Yes. It's heavyweights territory. That's for sure. For sure. So today we're going to kind of go through the earnings, the fourth quarter earnings and the sort of 2026 outlook for the big players. I guess to start, what was your big takeaway from this earnings season? My impression was that the market was still unconvinced about recovery in global demand. If we look at the reaction to Richemont's results, for example, it was an initial spike, but then when they added a negative commentary on Chinese demand, moving from low single digits negative in the third calendar quarter to mid single digits negative in the fourth calendar quarter, the share price went into negative territory. Then there was the all-important LVMH update, because this is typically seen as the proxy of the sector. They didn't do anything wrong, because they came in with minus 3% organic growth in the fashion and leather goods division, which is by far the most important one. That was in line with consensus, but then that prompted quite a significant amount of disappointment in the buy side, in a sense that LVMH was falling in between chairs. On the one hand, the hedge funds had been riding the sector and LVMH and making money with it, and on the other hand, the long-only investors were still reluctant to move off the fence because while minus three was matching expectations, it was still minus three. So not much to write home about, really. Then we had more positive news flow. For example, Hermès came in very strong. But you can see from the reaction to the updates that the market is still very much in self-help stories, potentially having company-specific idiosyncratic reasons to work, and the very strong positive reaction to the carrying update when there wasn't really a lot to celebrate from an organic growth perspective, but still maybe something to expect in terms of improvement down the road. Yeah. Okay. So let's go through the big players and then we can do a sort of look ahead after. So LVMH, you mentioned that they were in line with consensus in fashion and leather goods. The market didn't react super great to that because of the fact that they, also it sounded like LVMH was kind of like, this is going to be tough this year too in their communications. I don't know that they gave out a lot, really. There was a positive surprise on the bottom line, which wasn't enough to excite the market because at the end of the day, cutting networking capital and cutting costs is a bit of a one-off exercise, and you would need top-line revival in order to move in the right direction. And I think the Delvey Mage left that open, maybe also as a reaction to what they'd done the previous year. The previous year, I thought they were very bullish in their commentary on how January had been panning out and so on. So this year, maybe they were on the opposite side and didn't provide much of a sort of pounding the table kind of outlook. They didn't provide an outlook, to be fair. And I think that that was possibly enough for most of the long-haul investors to think, well, let's just wait and see how things span out in the first quarter or in the first half, and then make up our mind whether we want to go back to this actor and to all the image or not. Yeah. So when you're looking, obviously they don't break out numbers for individual brands, but we know certain things about how the different brands were performing. Last year, LV performed very well a lot because of that Murakami collaboration in the first quarter, and then I think in the second or third as well. And that sort of gave a bandaid to LV, which is already the more stable brand, less fashion oriented brand out of all of them. But like Dior and Celine and these other brands were down so much last year that I assume there's nowhere to go but up. So will that make up for the like, I don't know if Louis Vuitton will be able to anniversary that first quarter because it was so like they they beat expectations. But do you think that the new designers at some of the other brands, even though obviously they're much smaller than Louis Vuitton, will be able to sort of make up for the challenge in anniversary-ing the Murakami stuff? Well, it's really the debate, the big debate on the stock at the moment. My impression is that what is most reassuring is that the second largest brand seems to be reviving. The feedback we've been getting on Dior is very constructive, both on what Jonathan Anderson as shown on the catwalk, but also on accessories and handbags. There's been a lot of newness coming to the market in handbags, as our reports have pointed out. And that, at the end of the day, is a very important move the needle. And so if you're positive on Dior, and if Dior was indeed, as you said, the most important negative last year. This could possibly push other mage forward even before Wii anniversary Murakami. Clearly, in the first quarter, LV is going to be penalized by the comps from Murakami But with your doing well and we don continue to do well even without because one has to say that Wydon has done a great job at staying front of mind for our Chinese consumers and I think Delui in Shanghai has been an enormous, an enormous success. Then maybe even in the first quarter, we could potentially see a ray of light. And I think that what the market would call a ray of light is a move to positive organic growth as negative organic growth I think is going to keep people on the on the fence. Wine and spirits challenge business for them I have a little thing in Monday's line sheet about them selling off some of the smaller brands to focus on the larger ones I have done reporting on this. I know that you and other analysts have talked about a potential of them spinning out that that division. It's already 30 percent of it owned by Diageo. The reporting I've done from people internally is like, we're never going to we're never going to do that. Don't ever think it. But they are selling some of the smaller brands. What do you think about what's happening there? And do you think they should spin it out? I think that for sure they're doing a good job and I think throughout the company in cleaning up the house. When things are tough, this is a good time to cut costs and to sell loss-producing businesses. We've seen it not just at LVMH, but also at Richemont when you look at Beaumont-Mercier, for example. And I believe that with a former CFO at the helm of the division, Jean-Jacques Guignard, who has been a formidable CFO for LVMH, we should see cost control and perimeter adjustment as a matter of course. then I really don't believe that there's any synergy and any advantage whatsoever in keeping the ones the spirits business within LVMH there's no synergy in product development there's no synergy in communication or in distribution and if anything there's a dissynergy because you keep out of the LVMH shares quite a number of investors who cannot invest because of device exposure, which is not a problem just in the Middle East. It's a problem globally. So my view is you don't want to sell it, but spinning it off like Richemont did with Tobacco in 2008, putting the Moedisi assets into a publicly traded vehicle and distributing the shares to shareholders would leave the option to people owning the LVMH shares to keep this business in the portfolio or to put it back in the market. And I think this would be for the better. And we continue to stick to what we had published one year ago, where we made in detail the point about and the logic about a spinoff. I think it would still make a lot of sense. I don't see any benefit from keeping this business within the group at this stage. why do you think they are so insistent that they're going to that they're not going to that they're not going to spin it off that they're going to keep it within the group I wonder I think that there's many different reasons one of the reasons could be if you spin it off without a strong agreement with Diageo and how governance would work it would have a little bit of a problem because you would have one-third of the shares in the Diageo's hands. You would have one-third of the shares in the Arnault family and a third of the shares out there in the market. There would need to be an agreement on how you run the company. Today, there's no debate because LVMH has control and so they run the company. But if they span it off without an agreement, I think that this would cause a debate. And so this agreement would have to come before the spinoff so they know what to do with the flow back, who's going to buy what, and then potentially what is the end game. One of the options that would open up if you did the spinoff is that at one point, if you buy back the shares that institutional investors put in the market. You could split the company and the family could keep champagne and wines and Diageo could take cognac, for example. Does anyone want cognac, though? I don't know. I think that at the moment, this is a difficult business. So this could potentially be another reason why they're not spitting it off because Diageo has second thoughts. In the past, they definitely wanted cognac, but I don't know that they do want cognac now. Oh man, I definitely don't want cognac, Luca. For years, Gone South has been a podcast about crime in the American South. But for our new season, we're widening the lens. Through deeply reported narrative-driven stories, we're digging into the myths, scandals, and power structures that still shape the South. and in a lot of ways, the country itself. Follow and listen to Gone South Season 5, an Odyssey podcast, available now on Apple Podcasts, Spotify, or wherever you get your shows. On the Richemont piece. So you talked a bit about Cartier's really good performance. I assume Van Cleef and the other jewelry brands are doing really well also. I'm curious about what you think, if anything. Do you ever even think about their fashion division at this point? Like, is it consequential to you in any way? Not really, no. I think that that is a bit of a rounding error in the grand scheme of things. People don't even look at the specialist watchmakers, even if the specialist watchmakers produced a remarkable plus 7%. organic growth in the fourth calendar quarter, which was a complete positive surprise. I think that maybe the soft luxury business could attract attention if they were to proceed with this cleaning up that they started in watches already. The obvious candidates for divestiture after Lancel, one of the brands that the market would welcome separating from would be Dunhill. I don't think that Dunhill has produced any positive contribution for the past 10 years to the business, at least. So that, I think, is one way potentially to move this division to contributing positively sooner rather than later. and do you think that they need to hire a new designer at alaya immediately or you don't care it's like too small of a business for you to even be thinking about because they did grow the business i think it was 40 million prior to peter and it might be like close to 150 million now that's obviously nothing in your terms but but like do you think that they should hire someone immediately or do you think they they can hold they have the luxury of holding off because it is a small part of the business i don't know that it's a good idea to hold off because the brand has known huge momentum and that's the time to make hay and to continue to develop the brand it would be ideal if i could find a designer that takes the brand to the next step yeah it has definitely been a success story in the most recent years. And it would be a waste to just get it fade again, because you don't pay attention to it, which is, I think, the reason why the market doesn't like this soft luxury business, because the risk is that in a company like that, you get distracted by other more important things. while the assets you have are worth of attention, it could be doing very well if given the right attention and the right amount of love. Yeah. Well, another brand is about to get Peter Mulier Versace, which is now owned by the Prada Group. The results for Prada aren't until March 5th, right? That's right, yes. Oh, man, we're missing it. But what do you think? here's a question about Prada that is not connected to particularly to any quarterly earnings but Prada had a tremendous amount of growth at the Prada brand itself and also at the Miu Miu brand obviously there were quarters when they'd be up 100% or whatever a lot of that growth came from moving more of the business direct a lot of that growth came from opening new stores and also just from accelerating the Miu Miu business generally. That kind of growth is obviously not sustainable. You can't keep doubling sales every single quarter. What do you think moving forward, and especially as they absorb Versace, which has been explained to me as one of the most complex companies because of the way it's set up and just completely a total mess and they're going to have to spend all this time, you know, fixing it. What do you think the challenges for Prada Group are for the next year? I would think that they need to make sure that Prada stays in positive territory when it comes to growth. It would be underwhelming if you had the second derivative at mu mu turning negative, which I think is a given because, as you say, you cannot continue to grow in the high double digits forever, and it's natural that they would fade that organic growth going forward This wouldn be too bad if at the same time you had a sense that Prada is fine and is in positive territory That I think is the point of debate because there are a number of questions that Prada has to address First, there's a risk that given the amount of creative directors changing houses last year, There's a risk that consumers could be distracted and flock to brands with new creative propositions. And there's also a risk that the sale of the brands may have increased prices a bit too much and could be a bit too slow in adjusting their mix, and maybe Prada is in this list. so I think that the best insurance policy for a product to regain altitude because the share price has been hammered and the valuation is very low is to on the one hand show that they can move Prada forward Prada the brand and two that they don't have extravagant plans for Versace and that the Versace revival is not going to be a bloodbath of kitchen sinking and doing or trying to do everything at once, but possibly a more gradual endeavor of improving the business step by step. First, by beefing up desirability, reinventing the Versace iconic appeal in the modern day, which I think is very much time to do so, because I think Versace has been relatively stagnant for a very long time. So there's a need to wake up the sleeping beauty. Yeah. Assuming she's sleeping, of course. And then, you know, correct distribution and everything else that has to be corrected. But you want to do that once the brand momentum has at least given initial signs of restarting. Yeah, I mean, it's kind of a it's tricky because this Dario Vitale collection, they're really selling it and it seems to be doing well. And it's a an interesting conundrum of like, you have this one collection from this person who sort of totally revamped the brand consumers are responding well to it and he's out and so they're gonna have to do it over again i guess and they and they invested a lot in the campaigns and the advertising so it'll be interesting to see how peter does it and how he takes if he if his vision for versace has changed at all given the momentum that dario's one collection got that was counterintuitive indeed and i also got positive feedback on Dario's collection. Yeah. So seeing Dario go was a setback, let's say that. Yeah. Well, hopefully for his, I think we'll be seeing him somewhere else soon, sooner than later. He's so talented. So let's move on to Caring, which is they have the Gucci, the Demna Gucci debut this week. they have second collections from Bottega Veneta and Balenciaga coming they have the situation in McQueen that Luca DeMeo has been very honest about which is that like we're we're restructuring it and then we'll see what we want to do with it they've said that they're not going to sell it but like prior they had said maybe we would sell it it's been you know who knows but um what do you think and I and I know internally DeMeo has been very much like stock price you need to ignore it because we haven't done anything yet he's been very like honest with the employees about not taking the fact that they can that the market has responded so well to his appointment as a sign of victory but what do you think about where they are with Gucci and and is there a world in which that company doesn't rely on Gucci so much? I think that this week is going to be a major racist test to see if Gucci has a new identity and a new vision. I think that is going to be the most important element in the Caring revival. Luca has done a lot of good things at Caring already. as showed up the balance sheet addressed the high debt issue. I thought that the beauty license was very appropriate as well as the divestiture of greed. I think that there's going to be a bit more pain to be suffered when it comes to divesting recent real estate acquisitions that were made at very high prices. But that is not the issue. The issue is, what is the idea behind Gucci, behind Balenciaga, behind Saint Laurent? What are they supposed to achieve in the market? How are they going to be recognizing consumer interest? And what is, as a consequence, the creative energy that they need. Going back to the archives is not necessarily making brands a lot more interesting. I think that that is maybe a bit of a sort of pause on the effort to make them relevant again. To make them relevant again, you need to look forward. I don't think you need to look backward. And so we're all very keen and we're all very interested in seeing what the new creative talents will bring to these brands. And there's a lot of expectations in the market. As you saw, share price reactions, and as you were saying, has been anticipating positive moves. So I think that at this point, the positive moves would have to appear, and sooner rather than later, so that the market continues to open credit to this revival, which is going to be from now on brand specific. There's a formula for Gucci, which is not going to work. At Balenciaga, you will need a different formula. You will need a different formula on all of the brands. And I don't know that in the very short term, the group could be less dependent on Gucci. Gucci continues to be the largest portion of profits in the group. So if Gucci works, caring works. If Gucci doesn't work, then um it's not going to be easy to replace gucci anytime soon i know that they've been investing in other areas like in jewelry for example but again the jewelry investment is predicated on uh beefing up the jewelry collections of the brands they own and what is the most important brand they own again Gucci so Gucci has to work in order for carrying to work I don't think the best anyway to escape that this kind of brings me to Hermes because the thing that I can't kind of get my head around is is the like I was talking about this with someone at a show yesterday there's never going to be a time again like Demna at Balenciaga and and Alessandro Michele at Gucci where it was like they took over the entire market everybody wanted a piece of it it felt like anyone who buys luxury goods wanted them. And it just got so crazy where people were buying up until three years ago, people were buying luxury goods like they were fast fashion. They would buy one thing a week, like it was just so wild. And that was a big part of popular culture. I don't think that that is, I think that's on the decline. So how do these companies, knowing that, sort of course correct for this change in consumer behavior? Because it's not going to go back to people being freakazoids or something, even if they really like it. Like it's just not, the consumption patterns have changed. So what does the market and analysts like you expect from caring in terms of Gucci this year? Well, I think you need to sort of bring that discussion to a more granular market level. And I think that one way to potentially frame the issue is there was a time when young aspirational consumers were driving growth. And these consumers were very interested in a luxury interpretation that created a hybrid between casual and luxury, and streetwear and luxury. And so Caring was particularly great at capturing that opportunity, that opening in the market. They were the first to embrace it with Alessandro Michele and then Demna. Sneakers became very important. T-shirts became very important. And maybe one of the issues that you're confronting now is that you sold as many as you could have possibly done. Other brands followed that lead, but tried to limit their exposure and use that product maybe to attract attention. Think of how parsimoniously Huiton used the Supreme collaboration, which could have sold a lot of product, but they decided to limit that product in order not to change basically the perception of the brand DNA So as you gone down that road as much as you possibly could now sort of correcting course is a bit more difficult and requires quite a significant amount of slimming down Having said that, most of the slimming down at Gucci has already been done. Business went from more than 10 billion to less than 6 billion. So you could argue that the pain you take has been largely taken already. Yeah. And now you would need to think, what do I do with this brand? Which segments could be interested in Gucci? Who are my clients? And where do I need to go in order to attract them? I don't know that a big brand like that can have one constituency that they need to go after. As we've seen from larger brands, you need to have a multi-pronged approach. You need to be appealing to several different segments. And that, I think, is the work you need to do. once you know what you need to be for which clients, then you decide and you draw a conclusion on what kind of creative talent you need, not vice versa. Because vice versa would mean, I choose a creative director as I buy a lottery ticket, maybe I'm lucky. And maybe that creative director is going to make me rich. The probability of success of this approach is very low. you should possibly know where you want to go first and then choose a driver on the back of that direction. That is going to give you a better probability of success. And that's why I think that the market is very interested in the next Capital Market Day because the market wants to know where each of the brand is aiming to go and how. and then I think the market will draw conclusions on whether there's a good match between resources, the teams at the top of the brands and the stated objectives. I believe the capital market day is April 16th. Is that right? Correct, yes. Correct. I'll be there. I'm excited. Very good. So another opportunity to see each other in the play. Yeah, we'll hang out again. I'm so excited, Luca. Okay. So the reason I was thinking about Hermes in terms of the caring stuff is Hermes is kind of the outlier here in that their business has not, they've had, they've rarely disappointed the market. I feel like there was one quarter where they disappointed the market, but this quarter, they said that the Chinese middle class is coming back, which I was shocked to hear that. But I guess Hermes is Hermes. I was just curious what you think about their business in the context of all this other stuff. And is it just not comparable? No, I think that they play in the same arena. And in fact, I was at the conference in Paris for their four-year results. And I thought the atmosphere was very lighthearted. it, and it felt as if we had seen the end of a dark chapter. And that commentary, as you point out, was indeed very remarkable. The idea that the Chinese middle class is not as bad as it seems was a breath of fresh air. We need the Chinese middle class collectively as an industry to be supporting growth. LVMH needs it. Everyone needs it, including Hermès, which is more skewed to the high end with some of their products, but which is also very dependent on aspirational and middle-class consumers. So the revival of the Chinese middle class would be the hallmark of a 26 luxury sector improvement. That element alone would be a strong positive for the outlook in the industry. Today, we published a new report looking at traffic ahead of Chinese New Year, and we calculated that in the four cities where we looked at more than 10 luxury shopping malls, traffic was up by 47%, which, even if you take into account that people are not traveling to Japan like they did last year, seems a very strong positive data point. So it seems we're moving in the right direction, and that would be very good news for everyone, including Hermes, but for the broader sector as well. What about the other players that are a bit more the Italians, like Brunello Cuccinelli, Zegna, Moncler? How are they all faring right now? I know Moncler is doing very well because of all this snow. Brunello Cuccinelli and Zegna are high-end specialists in a K-shaped market. it. They should be doing very well indeed. They're small enough to play just in the very top end. They virtually have no aspirational consumers or very little aspirational consumers to speak of. The rich are getting richer. And with AI around the corner, they will do so even more. So they should be fine. I think that they should be fine. There was a few hiccups hitting Brunello, like the sacks, bankruptcy, and so on. But at the end of the day, these are totally unimportant in the grand scheme of things. Moncler, I think, is a bit of a different story. Moncler is shifting gears. They had quite a significant support from price increases in the past few years, but at the same time, their volume progression was negative. There's a need to reignite volume growth. There's less of an opportunity to continue to expand retail network as like-for-like has been tested. And there's less of an opportunity to continue to push like-for-like pricing because this would alienate or risk alienating the aspirational middle-class consumers who are still relevant for a brand like Monclerc. We cannot pretend that Monclerc is a high-end, exclusively high-end brand. So this is a bit of a transition in a way which is going to be important to see this year. At the same time the interesting new news which is not yet material but which could potentially be positive going forward, is the acceleration at Stone Island, especially when we look at their direct-to-consumer acceleration. That seems to be encouraging, because Stone Island had been a bit of a drag for a long time, and things start to be moving in the right direction, double digits growth in direct retail. was a very positive sign, in my opinion. But if it continues, then this could be a very welcome complement to sustain the Moncler Group momentum, because otherwise what you would need to conclude that with the lower price inflation available, lower retail network expansion available, you would need to see a maturing business. Yeah. So I guess or more blizzards. Just kidding. But it was apparently really good in the U.S. because of all the snow. It was so cold in America that it did so well. I don't know. Yes, but Montclair is not yet very exposed to the U.S. So I think that could potentially be a new area of growth going forward. They have dedicated quite a significant amount of resources to the U.S. The new flagship store to open on Fifth Avenue, the Aspen event, the taking of department store distribution under concessions. These have all been efforts to sort of make the U.S. the next chapter of growth, which makes that. So looking ahead this year, is it still a case of it's going to get worse before it gets better? or do you think that by the middle of the year we're going to see positive comps from most of these places and the feeling is going to be more thumbs up than thumbs down about the soft luxury in general? I think it's more this latter than the former. My impression is that we could see a ray of light in the first half already and I don't believe that things would need to get worse before they get better. If the revival in Chinese demand is confirmed with a strong background in demand from American and European consumers, we should finally be out of the woods. Luca, what do they say? Your words to God's lips or something. What's that saying? Your lips to God's ears. Well, I'm not sure about that. I think that's what it is. Always a pleasure to talk to you. You too, Luca. I can't believe we're going to meet on Friday. I can't wait. I'm definitely posting a photo to social media. I look forward to that. It means it's an idiom expressing a fervent hope or wish that what someone has just said will come true. Absolutely. Yes, indeed. I hope so, too. I keep my fingers crossed. Okay, we'll talk soon, Luca. Enjoy Milan. Take care. Bye-bye. Bye. Fashion People is a presentation of Odyssey in partnership with Puck. This show was produced and edited by Molly Nugent. Special thanks to our executive producers, Puck co-founder John Kelly, executive editor Ben Landy, and director of editorial operations, Gabi Grossman. An additional thanks to the team at Odyssey, J.D. Crowley, Jenna Weiss-Berman, and Bob Tabador.
