Luxury stocks are facing increasing uncertainty as major companies like Burberry and Hugo Boss have fallen short of expectations. This, coupled with concerning economic data from China, has dampened prospects for a near-term rebound in the luxury industry. Richemont SA, the owner of renowned luxury brand Cartier, is expected to shed further light on the challenges faced by luxury companies when it reports its third-quarter sales.
One of the main concerns about the demand for luxury goods is the lackluster economic growth figures from China. Chinese shoppers make up a significant portion of the global luxury market, and if their purchasing power declines, it could have a significant impact on the overall luxury industry. The negative reaction to recent releases from Burberry and Hugo Boss suggests that markets were not fully prepared for the downturn in the industry.
Investors were initially optimistic about the luxury sector in 2023 when China reopened, which led to a surge in luxury spending. However, the current sentiment is less positive, with expectations of a difficult start to 2024. Most brokers have lowered their earnings expectations for the sector, mainly due to the fragile global economic recovery. HSBC analysts believe that there are few catalysts for the luxury sector before April/May 2024 and express concerns that price increases might deter consumers.
Despite the challenges, some luxury companies like Hermes have shown less weakness compared to their peers. This is primarily due to the high demand for their luxury handbags. Investors are still betting on the long-term growth potential of the luxury sector, as it has a track record of generating superior growth and maintaining profit margins. It is expected that earnings will rebound in approximately six months as economic growth accelerates and travel from China increases. However, there are still risks for players operating in the lower end of the market.
Overall, the outlook for the luxury sector remains cautious, with analysts not anticipating many positive messages in the near term. Nevertheless, the luxury industry has consistently demonstrated its ability to adapt and thrive, and there is a belief that it will once again rebound and continue its growth trajectory.
Useful Links:
1. Burberry Reports Fall in Sales Over Festive Period
2. Hugo Boss Quarterly Sales Fall Due to Pandemic-Related Disruptions
