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On Monday, Bernstein analysts released a report examining the impact of deglobalization on the Global Luxury Goods industry, with a focus on how companies are adjusting their strategies to navigate the changing landscape. The report identifies three primary areas of action for luxury goods companies: geographic rebalancing, adopting new languages for global communication, and delocalization to create jobs in different markets, notably the USA. According to InvestingPro data, this strategic shift comes as the luxury sector maintains impressive gross profit margins of 67.58% and strong financial health scores, suggesting resilience amid market changes.
The analysts highlighted the geopolitical risk of China following Russia’s path, prompting luxury brands to diversify their geographic footprint. This includes opening stores in previously untapped American cities, such as Detroit and Nashville. Furthermore, brands are seeking to avoid cultural missteps in marketing by engaging in universally recognized sponsorships, like LVMH (EPA:LVMH)’s involvement with the Olympic Games and Formula 1.
The report also touches on the potential for the European luxury industry to increase production in the USA, citing Louis Vuitton’s Texas handbag factory as a possible trendsetter. This move aligns with calls for more American jobs, which could be supported by state and federal incentives.
Despite concerns over China’s less dominant role, the recent performance of companies like Richemont (SIX:CFR) suggests that the luxury sector can still prosper. The market has begun to adjust its growth expectations for FY25E accordingly, with sell-side consensus likely to follow. InvestingPro data reveals Richemont’s strong market performance, with a 20.03% year-to-date return and a robust current ratio of 2.52, indicating excellent liquidity. For deeper insights into the luxury sector’s financial metrics and exclusive ProTips, investors can access comprehensive analysis through InvestingPro’s premium features.
Bernstein maintains a positive outlook on LVMH, placing it at the top of their "quality bucket," despite acknowledging the company’s challenges. They anticipate that a turnaround in the Fashion & Leather Goods segment could renew investor interest. Hermès and Richemont also retain their Outperform ratings due to their high-quality reputation and resilience in uncertain economic conditions.
However, caution is advised against adding high-beta stocks to portfolios. Moncler was downgraded to Market-Perform due to its predictable seasonal trading patterns. While Burberry (LON:BRBY) has shown promise, the onus is on management to deliver results. The analysts remain holders of the Swatch Group (SIX:UHR) option, albeit with skepticism regarding the CEO’s public comments on a potential private takeover.
Finally, the report expresses skepticism regarding Kering (EPA:PRTP)’s immediate prospects, particularly with the upcoming addition of Demna as the head of Gucci. Given the timeline for his first collection and the company’s ongoing challenges, Bernstein suggests taking Kering’s guidance with caution. InvestingPro analysis indicates the sector faces valuation pressures, with current trading levels slightly above Fair Value. Subscribers can access over 10 additional ProTips and comprehensive financial metrics to make more informed investment decisions in the luxury goods sector.
In other recent news, Compagnie Financiere Richemont SA (JO:CFRJ) has seen several developments that are catching the attention of investors. Analysts from TD Cowen have maintained a Buy rating on Richemont, raising the price target to CHF210, emphasizing the company’s strategic supply chain investments and strong jewelry sales, which are expected to drive growth. Morgan Stanley (NYSE:MS) also upgraded Richemont to Overweight, increasing the price target to CHF200, citing the company’s robust financial performance and potential for earnings growth. Citi analysts have lifted their price target to CHF193, maintaining a Buy rating, noting Richemont’s strong sales performance, particularly in its jewelry segment, and improved forecasts for future earnings.
Additionally, Bernstein analysts increased their price target for Richemont to CHF190, maintaining an Outperform rating, following the company’s strong financial results and strategic focus on hard luxury items. Richemont’s third-quarter sales showed significant year-over-year growth, particularly outside Mainland China, which experienced an 18% decline. Analysts across firms have adjusted their earnings estimates for Richemont, anticipating continued growth and margin improvements in the coming fiscal years. The company’s agile supply chain and strategic positioning in the luxury market have been highlighted as key factors supporting its favorable outlook. These recent analyst updates reflect confidence in Richemont’s ability to capitalize on market opportunities and sustain its growth trajectory.
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