Burberry Group PLC (LSE:BRBY) remains one of JPMorgan's least-favoured luxury stocks despite signs that demand across the sector improved during the second quarter.
Analyst Chiara Battistini retained an 'underweight' rating on the British fashion house, with the same for Gucci owner Kering SA (EPA:KER) and Swiss watchmaker Swatch Group (SWX:UHR).
She cited continued economic uncertainty, the execution risks surrounding their turnarounds and potential pressure on earnings forecasts.
Luxury-sector growth accelerated by an average of three percentage points from the first quarter, supported by rising wealth in the US and stronger spending in Japan and South Korea.
Demand for leather goods also showed signs of bottoming out, suggesting handbags and similar products remained relevant to consumers despite a prolonged slowdown.
However, Battistini said performance remained sharply divided: jewellery companies and high-end ready-to-wear brands led the recovery, while Hermès (EPA:RMS), Prada and Ferragamo broadly matched the sector average with help from company-specific improvements.
The fashion and leather goods divisions of Louis Vuitton Moet Hennessy (EPA:MC) and Kering remained among the laggards. Sales volumes at the larger luxury groups were still flat or declining despite supportive financial markets.
Battistini warned that weaker US credit-card spending in July, uncertainty over the durability of South Korean demand and tougher comparisons during the second half left the wider recovery fragile.
Richemont (JSE:CFR), the owner of Cartier, remained its top pick because of its jewellery exposure and execution. The bank also favoured Moncler (BIT:MONC), Prada and smaller high-end clothing specialists Brunello Cucinelli and Ermenegildo Zegna.
The analyst said it was still too early to expect a sustained re-rating of LVMH or Hermès.
