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Investors Are Cautious About Luxury Sector, Barclays Finds

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Luxury’s biggest players start reporting third-quarter results this week, and Barclays doesn’t expect them “to be a key catalyst for the space.”

After speaking with more than 50 investors across Europe, Asia, the U.S. and the Middle East, the British bank found “a cautious view on the sector, mainly because of the lack of visibility around China and concerns around growth normalization after a strong COVID-19 recovery period.”

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“We think investors will need reassurance on the ability of the sector to continue delivering solid top-line growth and to maintain resilient margins,” Barclays said in a report released Monday.

It expects investors to be hungry for indications on current trading in China and the U.S., and the outlook for those linchpin markets.

“The third quarter has been disrupted by the comments made by the Chinese government around common prosperity and curbing excessively high income, and by concerns around a potential slowdown in the U.S. market,” Barclays said.

In China, there are concerns about the potential for further regulations around the entertainment industry and social media platforms that could impact how brands communicate with consumers, and about a climate in which “flaunting one’s wealth” could be frowned upon.

For the U.S., investors expect a more cautious outlook as the impact of stimulus checks fades and outsize demand normalizes.

Investors seem divided on prospects for Swatch and Kering, whereas they largely accepted Barclay’s “overweight” ratings on Compagnie Financière Richemont and LVMH Moët Hennessy Louis Vuitton.

LVMH is to report its third-quarter results after the French stock market closes on Tuesday and Barclays expects “solid trends” and organic growth of 22 percent for the group and its fashion and leather goods business segment.

“Trends at Kering, however, should be less impressive, as the company indicated that the third quarter should remain a transition quarter for Gucci. We forecast organic growth of 9 percent for Gucci and 11 percent for Kering,” the report said.

The pressure seems to be ratcheting up on Kering to make an acquisition that might reduce its overexposure to Gucci.

Investors pushed back on Barclays’ overweight rating for Swatch “as the market remains skeptical about management’s ability to deliver on guidance. The group is also seen as exposed to a structurally challenging industry.”

Barclays forecasts organic growth of 25 percent in the third quarter for Hermès International and first-half organic growth of 58 percent for Richemont.


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