Bernstein says ROIC is key for European luxury with Hermes on top

Prada SpA

09/04/2024 09:47

** Bernstein says return of invested capital (ROIC) is the
key number to analyse the European luxury sector and names
Hermes  HRMS.PA  as the "gold standard" for the metric
    ** It says luxury sector's ROIC has been above the 20-year
average in recent years, with 14.1% on average in 2021, 16.7% in
2022 and 16.6% in 2023
    ** Bernstein says Hermes ("market-perform") stands "heads
and shoulders above anyone else" with its 2023 ROIC of 63.6% and
focus on organic growth and high brand desirability
    ** It expects Swatch  UHR.S  ("outperform") to continue to
languish as management disregards investor concerns over
long-term ROIC underperformance
    ** The broker notes Prada  1913.HK  and EssilorLuxottica
 ESLX.PA  (both "market-perform") saw their ROIC rise through
2023, while most rivals recorded declines
    ** "Prada improves on the back of stronger brand traction,
albeit following to highly de-averaged pattern, with Miu Miu
booming and Prada a few steps behind," it writes
    ** It says expectations for Kering  PRTP.PA  have likely
reached a bottom after a disappointing Q1 pre-release, while
Burberry  BRBY.L  is further away from fixing its issues (both
"market-perform")

 (Reporting by Tristan Veyet)
 ((Tristan.chabba@thomsonreuters.com))