Nomalisimg demand across the global luxury goods market has left Bank of America analysts backing those with a more affluent customer base.
Including Hermes, Louis Vuitton Moet Hennessy (EPA:MC), Brunello Cucinelli and Zegna, analysts highlighted a preference for brands with a track record of resilience through periods of low growth.
Demand will likely normalise in the third quarter of this year, prompting revenue growth as low as 3% across the board in the first quarter of 2024.
“We continue to believe in the structural appeal of the luxury sector,” the bank reassured, thanks to the sector’s high barriers to entry, strong free cash flow generation and pricing power.
“However patience is required,” analysts added, as the sector’s rapid post-Covid growth looks to be slowing back to more long-term trends.
“In order to protect margins, companies will need to slow brand reinvestment,” the bank said in a note.
“Whilst this is probably fine for larger names that have invested heavily over the last four years, it makes it harder for those attempting a brand turnaround.”
The bank said Pandora, Swatch and Moncler are “cheap idiosyncratic stories, while it gave Burberry Group PLC (LSE:BRBY), Kering, Ferragamo and Tods “underperform” ratings.
“We are more cautious on companies with higher exposure to a younger, less affluent customer and in the midst of a brand turnaround,” analysts said.