Arjen Los is the CIO at Dominion and manager of the Dominion Global Trends Consumer and Strategic funds. His diary runs from 10-14 September
Monday Having spent a sunny weekend on the continent, I land in cloudy London early in the morning. Not a great start in the market either: investors are absorbing Burberry’s shock profit warning which is affecting the whole luxury goods sector. How can a company see sales growth evaporate so quickly? One would almost think they closed their shops and went on a collective company holiday. We have managed to organise a conference call with the company but there are too many uncertainties surrounding the prospects for the group company in our view and we decide to stay out of this position.
Tuesday Yesterday was Burberry Day, today is Prada Day. Our confidence in this iconic Italian brand has not been misplaced: Prada reported excellent results and this puts the Burberry warning into a new light: is it a specific company phenomenon? We sympathise with Prada management who had to answer more questions about the competition than their own company during the conference call with investors. They reassured us that the positive sales trend continued during the first three weeks of September and Prada’s CEO makes an interesting observation: China should not be the only focus for expansion. A number of other markets are experiencing superior growth rates, and a myopic focus on China deflects from a wider picture showing high growth in many regions.
Wednesday A good night’s sleep helps to put recent company results into perspective thereby igniting a debate about global trends during our morning call; we are discussing China again in spite of my attempt to direct the conversation towards global issues. We conclude the Chinese long term outlook for discretionary spending remains better than almost anywhere else. Reports from companies that we own in our portfolios provide a reason for optimism: someone observes that throughout the year we have gradually been raising growth estimates. We conclude that valuations are attractive and that “the glass is half full”; we move on from worrying about Burberry and return to the analysis of products that the new middle classes aspire to buy.
Thursday I am planning yet another trip to Asia: these trips teach me a lot about hotel chains (Intercontinental and Starwood seem to be the most professional brands globally) and travel flows. In actual fact the idea to invest in Dufry (the global operator of duty-free shops) came after I spent too much on family gifts during a particularly long wait for a connecting flight in Singapore: it must be a retailers dream to have captive clients who are bored and whose ability to think rationally has been affected by jet-lag! Lately there seems to be a noticeable increase in the number of Asian tourist groups. Over the years we have of course seen groups of Americans and Japanese buying gifts for the family in Harrods or Bond Street. The Asian tourist is not different but the numbers seem larger which is confirmed by retailers.
Friday Our normal 8.30 AM call gets drawn out into a larger discussion about the travel industry with a focus on its value chain: we decide to avoid airlines and focus on hospitality. Someone mumbles “Club Med” which grabs the attention: an almost forgotten stock that after a turbulent (highly leveraged) past turned around under new management. The business is now based on three pillars: become “asset light”, move up-market and expand in emerging markets. The number of management contracts has indeed increased and the resorts quality was improved. China and Brazil have been identified as the key growth markets and the company opened the first premium ski resort in China. Our analyst has decided to do some empirical research and has booked a Club Med holiday in Mexico: may-be he will meet the Burberry staff there as well.