LONDON — Is luxury on the rebound? It’s difficult to say.
Analysts are divided about the future of demand after the unexpected uptick in revenue at Richemont during the Christmas trading quarter, which prompted a surge in share prices last week at the big luxury groups.
In a flurry of reports this week, equities analysts from banks and brokers including Bernstein, Barclays, and RBC Capital Markets have been parsing Richemont’s surprising third-quarter results.
Some argue that Richemont’s gains point to better times ahead for the sector, while others believe the surge was specific to hard luxury — and to the power of the Richemont brands.
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As reported, Richemont revenue rose 10 percent to 6.2 billion euros with double-digit gains in all regions except for China, where demand continues to stagnate. Revenue beat consensus by 9 percent.
On Thursday, Richemont’s shares closed up more than 16 percent and lifted those of its luxury peers including LVMH Moët Hennessy Louis Vuitton, which rose more than 9 percent, and Kering, which was up more than 6 percent.
The Richemont effect has continued to buoy luxury stocks since then, while in his report Bernstein’s Luca Solca said Tuesday that the sector is now “back in vogue after spending a few months in the penalty box.”
Solca named a few of the reasons behind luxury’s rebound. He said the “cyclical demand environment” has improved sequentially nearly everywhere, and added that all nationalities are now spending more year-on-year than in the third fiscal quarter of 2024 “even if the Chinese stay on the back foot.”
He believes that the tide of changes “will lift all boats.”
Solca added that jewelry in particular is experiencing stronger sales momentum compared with soft luxury because “it’s a lot cheaper than handbags today, in relative terms, and doesn’t face the same value for money challenge. This has been apparent for a few quarters, and is unlikely to change in the short term.”
Solca also pointed to Richemont’s own strengths, and portfolio of brands.
He said the group “provides clean exposure to hard luxury, has been even-handed on price increases, and holds the hottest hard luxury brands on the market today.” He acknowledged that Richemont occupies a “sweet spot” in the market, which he believes was a big contributor to the bounce in third-quarter sales.
Both Barclays and RBC also believe it was Richemont’s special positioning that fueled growth in the quarter, and suggested that investors shouldn’t necessarily get their hopes up regarding other luxury groups’ performance in the Christmas period.
In its report, “Shining Bright,” Barclays’ luxury goods team wrote that “Richemont is a positive read across the rest of the sector. However, we believe that the extent of growth acceleration at Richemont is also due to brand-specific factors [such as] the strong momentum of jewelry, newness at key brands Cartier and Van Cleef & Arpels, better availabilities of inventories, and space expansion.”
Barclays maintained its overweight rating on the stock and increased its price target to 175 Swiss francs from 150 Swiss francs following the publication of the Richemont results last week.
RBC Capital Markets also raised its price target on the Richemont stock to 170 Swiss francs from 145 Swiss francs.
The bank said Richemont’s revenue acceleration was down to “company-specific drivers including jewelry trends, perceived store of wealth and value for money, and brand momentum at Cartier and Van Cleef & Arpels” as well as the inherent strength of its brands.
The author of the report, Piral Dadhania, said “the extent to which we can read across Richemont results to the wider soft luxury space is not likely to be broad-based, but brand specific, with the winners likely to continue, and the laggards likely to remain so in the near term, in our view.”
Dadhania is expecting negative, near-term share price risk for the wider sector through the 2024 full-year reporting season, unless companies report better-than-expected results, or announce earnings upgrades, in what is still a “mixed” environment for luxury companies.
Cautious optimism might be the best approach for brands and investors alike. At least that’s what Richemont founder and chairman Johann Rupert would advise.
Rupert, who always takes the long view on business and market trends, said last year that “uncertainty has become the norm” in the luxury business, and the weakness in Chinese demand will take longer to recover.