Luxury Stocks Are Set for a Bleak Earnings Season, UBS Warns

Analysts at UBS Group AG are warning luxury stock investors to be prepared for a weak earnings season that will also offer little visibility into the sector’s outlook for 2024.

Ahead of Italian cashmere knitter Brunello Cucinelli SpA kicking off the reporting period on Jan. 8, UBS analysts led by Zuzanna Pusz said Wednesday that slowing demand from Chinese shoppers and the absence of significant pick up elsewhere would weigh on sales.

Moreover, the premium investors are willing to pay for the sector is typically challenged at times of slowing growth, they said. LVMH and Gucci-owner Kering SA were both down more than 3 percent on Wednesday.

“Although we continue to like the sector structurally in the long-term, we remain cautious in the short-term seeing further downside risk to estimates,” the analysts said.

Unlike the buoyant start to 2023, when China’s post-pandemic reopening fueled a splurge on pricey handbags and jewellery, investors expect this year to start on a weak footing before a revival toward the second half. JPMorgan and Morgan Stanley recently downgraded LVMH to a neutral stance while HSBC took a hatchet to all its price targets.

Against this backdrop, UBS analysts believe investors should stick to the most defensive players which are exposed to high-end consumers, such as France’s Hermes International SCA, rather than “unproven” turnaround names such as Burberry Group Plc even though they’re cheaper.

By Julien Ponthus

Learn more:

Can Luxury Brands Grow in 2024?

For over a decade, luxury brands could depend on casualisation, China and a post-pandemic boom to drive record sales and profits. Now that those factors have played out, it’s unclear where they will turn next for growth.