The sector did very well at the start of the year, helping push the luxury-rich CAC 40 FR:PX1 index in France to a record high in April, as companies including LVMH MC, -0.68% and Hermes International RMS, -0.92% saw their share prices peak.
First off, he perceives the end of the current luxury supercycle. The market size is now roughly 24% above 2019 levels, he notes, with recent growth rates above average for most of the companies RBC covers. “This is not sustainable, and we expect moderating revenue growth trends from here,” Dadhania says.
Finally, macro-economic headwinds such as higher non-discretionary costs like rent and mortgages are the worst in decades, RBC reckons. This means the aspirational consumer, which RBC believes number roughly 165 million globally, and which have been an important driver of luxury demand, are “less visible today,”
“LVMH offers the best downside protection on margins in our view, whilst Kering is our preferred turnaround idea at an attractive valuation. We also upgrade EssilorLuxottica EL, -1.73% to sector perform. In sporting goods, we prefer Puma PUM, +0.48%, ” says Dadhania.