Europe’s beaten-down luxury stocks have turned a corner the past two months, increasing the stakes for the earnings the companies are about to announce.
Speculation that China’s economic stimulus will lead to higher spending, and that Donald Trump will manage to boost US growth, has lifted a Goldman Sachs Group Inc. basket tracking the sector by 13% since mid-November, outpacing the broader market. Now investors need proof that the optimism was justified.
“What we really want to see is a sense of increased confidence,” said Nick Clay, a fund manager at London investment firm Redwheel. Investors want signs “that suffering has bottomed in the fourth quarter of last year.”
The first big test comes Thursday, when Cartier owner Richemont reports sales for the December quarter. Sector bellwether LVMH announces results on January 28, with Gucci owner Kering SA scheduled for February 11 and Hermès International SCA on February 14. Burberry Group Plc reports quarterly sales on January 24.
There have been some early positives. On Monday, fourth-quarter sales from Italy’s Brunello Cucinelli SpA showed demand is holding up at the ultra-wealthy end of the spectrum, where customers can buy €17,500 ($18,000) cashmere and vicuña bomber jackets.
The stakes are high for investors. France’s LVMH is the region’s second-biggest company by market value, while Hermès and Richemont also have big weightings in national and regional indexes. That means a further rally in the sector could lift benchmarks across Europe after a year when many stocks got hammered by weak sales in China.
The sales and earnings reports due over the next few weeks are crucial because they reflect consumer demand over the Christmas shopping season.
Richemont, the owner of Van Cleef & Arpels, should benefit from growth in jewelry, which offers a “compelling price to value proposition,” according to TD Cowen analysts, who recently upgraded the stock to buy.
The bull case for the stocks at this point is that executives may signal they’re seeing early signs the market is in the process of bottoming. A dramatic improvement in fourth-quarter results is unlikely, given that the slump in China’s property market shows no signs of abating, while the rising cost of goods and materials could put pressure on company margins.
“The fourth quarter should still be a bit difficult,” Morningstar analyst Jelena Sokolova said. “It’s hard to see yet the inflection point.”
Judging by analyst ratings, companies serving the wealthiest section of society tend to be more in favor, given they are seen as more insulated from swings in the global economy. LVMH has by far the greatest number of analyst buy ratings at 26, according to data compiled by Bloomberg, followed by Richemont and Hermès.
Investors also will be keen to see how companies undergoing a revamp, such as Kering’s Gucci, Burberry and Hugo Boss AG, are faring. Overall, any indications that the industry’s recovery has legs will be most welcome.
Signs of a revival in growth are especially important now because valuations for luxury companies have ticked into slightly expensive territory. The buzz around some brands, such as Hermès and Prada SpA’s Miu Miu, may justify the higher price-earnings ratios.
“Those luxury companies with very strong brands — they are where the demand is,” said Helen Jewell, chief investment officer of fundamental equities EMEA at BlackRock Inc. “Where the brand strength is real, those companies have done incredibly well. It cannot be replicated. They have pricing power.”
German retail sales rose in 2024, but growth should be more modest this year due to the high level of uncertainty, according to retail association HDE.
Last year, retail sales rose 1.1% compared to the previous year in inflation-adjusted terms, official data showed on Friday. The HDE forecasts 0.5% growth in real terms this year.
“Consumption and the retail sector in Germany will not really gain momentum in 2025 either,” said HDE managing director Stefan Genth. “There is simply too much uncertainty,” he said. “Wars, high energy costs and overall economic stagnation are a toxic cocktail for consumption.”
In nominal terms, retail sales rose by 2.5% in 2024 and are expected to grow by 2.0% in 2025, according to HDE’s forecast.
The latest HDE survey with 700 retailers shows that 22% of respondents expect sales to increase this year, while almost half of them expect results to be below the previous year’s level.
In December, retail sales fell by 1.6% compared with the previous month, official data showed. Analysts had predicted a 0.2% increase.
Many big names in UK retail had a good Christmas season — despite the sector being generally sluggish — but it seems John Lewis Partnership (JLP) may not have been one of them.
The retailer — which operates its eponymous department stores and webstore, plus Waitrose supermarkets — has missed its profit target after a disappointing festive season.
It hasn’t shared any info officially but internal documents seen by The Telegraph suggest bad news to come when it does release its results.
Those internal documents have only been shared with staff so far with the company saying that sales have fallen short of expectations and it’s unlikely to achieve its hoped-for £131 million full-year profit.
The company is said to have blamed “lower consumer confidence and weaker than expected market confidence” for the sales miss in the month to 21 December, although also the fact that key trading days fell outside the period.
Sales targets were missed at both of the firm’s chains, although the newspaper said it still claimed it outperformed rivals and staff should be “proud of our performance”.
It will be interesting therefore to see exactly what its figures were as a number of rivals have actually reported a good Christmas. If its stores have beaten other supermarkets and chains like M&S, perhaps its targets were too ambitious in the first place.
We won’t know for a while, but we do know that with M&S resurgent, JLP’s supermarkets and department stores have lost some of their lustre as the destination of choice for Britain’s middle classes.
So what were the firm’s benchmarks? Back in September it had said it was seeing strong demand and expected a significant rise in profits for the year to January. The prior year’s pre-tax profit had been £56 million and the year before that it made a loss.
It had also talked about its turnaround efforts paying off and that it was seeing a “considerable improvement” in performance, with the John Lewis chain in particular expected to benefit from a buoyant second half.
It’s been rumoured for some time that he would exit the label but it’s not yet known what his next step will be.
Jones has been widely praised for his work at Dior with his latest men’s collection shown this month being hailed as a success.
He’s been a key creative at LVMH having also designed its Fendi women’s collections. And he helmed Louis Vuitton’s menswear before he joined Dior.
The company said it “wishes to express its deepest gratitude” to the designer “who has accelerated the development of Men’s collections internationally and has greatly contributed to the worldwide influence of the House by creating an inspiring wardrobe that is both classic and contemporary, and connected to some artists of our time”.
And Delphine Arnault, who’s chairman and CEO of Christian Dior Couture,added: “I am extremely grateful for the remarkable work done by Kim Jones, his studio, and the ateliers. With all his talent and creativity, he has constantly reinterpreted the House’s heritage with genuine freedom of tone and surprising, highly desirable artistic collaborations.”
Jones meanwhile called it a “true honour to have been able to create my collections within the House of Dior, a symbol of absolute excellence. I express my deep gratitude to my studio and the ateliers who have accompanied me on this wonderful journey. They have brought my creations to life. I would also like to take this opportunity to thank the artists and friends I have met through my collaborations. Lastly, I feel sincere gratitude towards Bernard and Delphine Arnault, who have given me their full support.”
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