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HomeNews WireRBC Warns Richemont Could Face Major Blow in Luxury Goods Market

RBC Warns Richemont Could Face Major Blow in Luxury Goods Market

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Luxury goods retailer Compagnie Financière Richemont may face serious challenges in the coming months, according to a report from RBC Capital Markets. The bank downgraded Richemont’s share price target and expressed caution about the luxury goods sector as a whole. RBC highlighted the potential vulnerability of Richemont’s fine jewelry business to a decline in consumer spending. The bank also noted that the luxury cycle is turning and that hard luxury, particularly watches, could face challenges as Rolex supply increases. Richemont’s high-end watch brands include Cartier and IWC.

RBC’s report also outlined expectations for Richemont’s future performance. The bank predicted a 5 percent increase in organic revenue growth for fiscal 2025, lower than consensus estimates of 7.5 percent. RBC also expressed concerns about the impact of the traveling Chinese consumer on Richemont’s revenue growth, suggesting that there may be less incentive for Chinese consumers to purchase overseas.

In addition to its analysis of Richemont, RBC provided a broader perspective on the luxury sector as a whole. The bank reiterated its bearish view on the sector and stated that the fiscal 2024 earnings estimates for the luxury companies it covers are 3 to 8 percent below consensus. RBC highlighted the normalization of spending and consumers’ potential return to experiential pursuits, such as travel and dining out, as factors that could contribute to a slowdown in luxury sales.

RBC’s report also raised concerns about the sustainability of the luxury market’s recent growth. The bank argued that the size of the market is currently around 25 percent above 2019 levels and that the compound annual growth rate over the past four years has been higher than longer-term averages. RBC stated that this level of growth is not sustainable and projected moderating revenue growth for the sector.

The bank’s analysis reflects the sentiments expressed by other luxury goods retailers, such as Mytheresa, whose CEO Michael Kliger has noted a temporary decline in demand from aspirational shoppers. Kliger cited a decrease in spending following the pandemic and excess stock in the market as reasons for the decline. RBC also highlighted macroeconomic headwinds, including higher inflation and interest rates, which could impact consumer spending on luxury goods.

RBC’s report cautioned that the current downturn in the luxury sector could be more significant than previous downturns due to differences in economic conditions, particularly in China. The bank compared the expected decline in luxury sales to historic downturns and noted that these downturns typically last for four quarters and bring a 12 percent decline in shares.

While RBC expressed caution about the luxury goods sector, it did identify some outperform-rated stocks, including LVMH Moët Hennessy Louis Vuitton and Kering. The bank also upgraded EssilorLuxottica to sector perform.

Overall, RBC’s report suggests that the luxury goods market, including Compagnie Financière Richemont, may face challenges in the coming months due to factors such as declining consumer spending and a potential slowdown in demand from aspirational shoppers. However, it is important to note that these predictions are based on the bank’s analysis and should be considered alongside other sources of information and expert opinions.

More detail via WWD here… ( Image via WWD )

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