In a report recently published by their analysts, they review the series of events that estimate may limit industry growth in the coming quarters. Most of them are not necessarily new. China is the main source of concern because corruption measures and slower growth in the economy has joined market volatility, which has led to reduced confidence. For Nomura, both the current quarter and 2016 will be difficult for the sector, although reaffirms its confidence in this market in the long term.
For the United States, Nomura believes that we will see a slow growth in the short term and may also experience a decrease in margins due to the high level of existing inventories. In Europe the benefit of higher economic growth will be offset by the terrorist attacks in Paris and the fall of tourist visits from China.
In any case, Nomura estimates that the sector’s organic growth will be 5% in 2016, which will mean a slight acceleration from the 3.5% of 2015. It is true that these figures are well below that seen in the last decade but in any case still means an expansion of the luxury industry. In the report, Nomura maintains that the power to raise prices could be lower and that the contribution to sales of new commercial space could be negative, as the brands are analyzing the rationality of its presence in bear markets as China and Hong Kong.
LVMH and Kering, the Industry Favorites
Regarding companies, Nomura maintains buy recommendations on LVMH (by its diversified portfolio and defensive character) and Kering (for the recovery of Gucci and Puma possible sale). Moreover, it has worsened the ratings of Swatch and Burberry to neutral. For the watchmaker, because the complicated the future of the watch industry, while Burberry has a strong product offering, but it doubts of their forecasts to get a return of about 5% in the current economic environment.
Finally, the analysis firm has worsened its recommendations on Hugo Boss and Tod´s to reduce. Regarding Hugo Boss, it believes forecasts are weak, need to solve the price differentials and costs could increase further in 2016, which could complicate the achievement of its objectives. For Tod´s, Nomura expects a difficult scenario, with reduced growth and margins and focus on strategy and cost structure.
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