LVMH, the luxury goods company which owns brands such as Givenchy and Christian Dior, cemented itself as Europe’s most valuable company after hitting a market cap of €400bn.
Analysts at RBC Capital Markets said investor sentiment around the Paris-headquartered giant, headed by Frenchman Bernard Arnault, appears to remain positive, while also making bullish comments about fellow upmarket goods companies Richemont and Kering, part of its preferred trio in the luxury sector.
But they warned that this positivity doesn’t apply across the entire sector.
Operationally, momentum in LVMH's Dior business remains strong and shows long-term potential, while Louis Vuitton products showed better availability in the fourth quarter, analysts noted.
RBC sang a similar tune for Cartier owner Richemont, which is “firing on all cylinders” ahead of results due on Wednesday.
Richemont’s revenue growth is among the best in the luxury sector, the analysts said, and demand and attractiveness for watches are both at the strongest in decades, with Richemont having several watch manufacturers in its portfolio.
The broker is also bullish on Gucci owner Kering, with the outlook bright for the luxury brands group and its portfolio is performing well, with strong cash generation and mergers and acquisitions on the way.
Luxury losers
However, a positive outlook for the three above-mentioned companies doesn’t read across the entire sector, the RBC analysts said.
French eyewear brand EssilorLuxottica’s low exposure to the Chinese market means it won’t receive a boost following the easing of restrictions like some of its competitors.
US Food and Drug Administration approval for the group’s product to manage myopia, or short-sightedness, could provide a “catalyst” for positive sentiment, however.
Elsewhere, RBC believes 2023 shows no signs of revenue or margin expansion for jeweller Pandora, with the group’s sell-out trends stalling at the single-digit level.
Mixed fortunes
On Burberry Group PLC (LSE:BRBY), which is also reporting among a band of retailers on Wednesday, RBC is confident in the group's £4bn revenue target, although believes the UK has a relative disadvantage for future inbound luxury tourism flows.
Additionally, the analysts believe that Watches of Switzerland Group PLC's (LSE:WOSG) business model is unique and highly resilient, and well positioned to benefit from an industry where demand exceeds supply for over 50% of the products sold.
In sporting goods, RBC favours Nike and Puma, with the former showing strong revenue momentum and recovery in China, while the latter’s earnings growth is attractive in comparison to Adidas.Credit Suisse said trading and consumer spending habits at Watches of Switzerland remained robust and strong, with Christmas treading in line with expectations.