Luxury goods' pullback likely an opportunity, but patience needed - BofA

Ermenegildo Zegna NV

25/09/2023 12:51

** BofA Global Research says luxury goods' pullback will
likely create an investment opportunity as the sector maintains
its appeal on brand desirability and attractive margins, but
patience is required
    ** Luxury stocks are down 17% from their recent highs as
evidence of normalisation in Q3 demand emerges, especially in
August, it notes
    ** The broker expects luxury revenue growth to trough as low
as +3% in Q1 2024
    ** BofA says companies will need to slow down brand
reinvestment to protect margins, and while that's probably fine
for larger names, it could be harder for those attempting a
brand turnaround
    ** It downgrades Richemont  CFR.S  and Prada  1913.F  to
"neutral" from "buy", Kering  PRTP.PA  and Tod's  TOD.MI  to
"underperform" from "neutral"
    ** It upgrades Zegna  JN0.F  and Pandora  PNDORA.CO  to
"buy" from "neutral" and Hugo Boss  BOSSn.DE  to "neutral" from
"underperform"
    ** It prefers companies that are exposed to a more affluent
customer base or that have historically demonstrated more
resilience through the cycle, such as Hermes  HRMS.PA , LVMH
 LVMH.PA , Brunello Cucinelli  BCU.MI  and Zegna (all "buy")
    ** It's more cautious on companies with higher exposure to a
younger, less affluent customer and those in the midst of a
brand turnaround, like Burberry  BRBY.L , Kering, Ferragamo
 SFER.MI  and Tod's (all "underperform")

 (Reporting by Matteo Allievi)
 ((Matteo.allievi@thomsonreuters.com))