Bank of America downgrades European luxury stocks

Investing.com - Bank of America (NYSE:BAC) Securities has taken a look at European luxury goods, and expects the sectorial slowdown to continue into the second half of 2024 and also next year.

“The luxury consumer is all shopped out,” said analysts at Bank of America Securities, in a note dated Sept. 23. “Muted sector revenue growth will now likely continue into 2H24 and 2025 (-1% in 2H and +3% in 2025), leading to margin pressure, and no EBIT growth.”

The recent deterioration has been the Chinese consumer, which was the only driver of revenue growth in 1H24, the bank said.  

Chinese luxury spend was +10% in 1Q and +4% in 2Q, accounting for almost 100% of sector revenue growth. “Demand has deteriorated in 3Q (both domestic and travel related). We expect Chinese luxury spend -1% in 2H24, and flat in 2025, but risk is still tilted to the downside given the progressive deterioration.”

“We now factor in a more prolonged slowdown in luxury sector revenue growth, which will likely translate into further margin pressure. On average we cut 2025 EPS by 17% and are 12% below consensus,” BoA added.

The bank has downgraded LVMH Moet Hennessy Louis Vuitton (EPA:LVMH), Kering (LON:0IIH) (EPA:PRTP), Ermenegildo Zegna (NYSE:ZGN), all to “neutral” from “buy”, and Hugo Boss (LON:0Q8F) (ETR:BOSSn) to “underperform” from “buy” to reflect a more challenging backdrop in 2024-25 and earnings risk, while cutting its price objectives by 20% on average. 

“We now have only three stocks Buy rated - Hermes (EPA:HRMS), Brunello Cucinelli (BIT:BCU) and Pandora (OTC:PANDY).”