The recent slowdown in the Chinese luxury consumption trend is evident in the earnings of the European luxury brands like Hermes and LVMH. Nike itself is also experiencing slower growth due to its mishaps coming out of Covid. How do you think this will impact Stella?
These factors will certainly affect Stella, but I believe the impact will be more short-term than long-term. We do need to forecast 2024 conservatively, considering the sluggish recovery in the luxury segment and Nike's underperformance in its turnaround efforts. However, the mid-to-long-term story for Stella remains intact. Specifically, regarding luxury, Stella's current factory utilization for this segment is already at full capacity, as they need to free-up capacity in Vietnam step-by-step to handle more luxury production. The current order volume from luxury clients is more than sufficient to fill this capacity. In other words, the company may even prefer luxury demand to peak next year or beyond when they will have more capacity to meet the demands.
The recent slowdown in the Chinese luxury consumption trend is evident in the earnings of the European luxury brands like Hermes and LVMH. Nike itself is also experiencing slower growth due to its mishaps coming out of Covid. How do you think this will impact Stella?
These factors will certainly affect Stella, but I believe the impact will be more short-term than long-term. We do need to forecast 2024 conservatively, considering the sluggish recovery in the luxury segment and Nike's underperformance in its turnaround efforts. However, the mid-to-long-term story for Stella remains intact. Specifically, regarding luxury, Stella's current factory utilization for this segment is already at full capacity, as they need to free-up capacity in Vietnam step-by-step to handle more luxury production. The current order volume from luxury clients is more than sufficient to fill this capacity. In other words, the company may even prefer luxury demand to peak next year or beyond when they will have more capacity to meet the demands.
What about margin durability? Do you think 10/12% EBIT is sustainable? Manufacturers tend to have a lot of operational leverage