>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: TIK +10.7%, OHGI +8.5%, BCOM +5.3%, (co's subsid posted earnings update), PLUG +2.2%, YOD +1%

M&A news: ERIC +1.6% (Friday rumors of acquisition by Cisco (CSCO); states recent partnership had no discussions of merger)

Select metals/mining stocks trading higher: AUY +2.7%, AEM +1.6%, SLW +1.5%, GDX +1%, BHP +0.7%, GLD +0.7%

Select oil/gas related names showing strength: RDS.A +1.2%, RIG +1.1%, BP +0.7%, CHK +0.5%, TOT +0.4%

Other news: NLST +21.5% (U.S. Federal Court of Appeals upheld the validity of all claims in the reexamination of U.S. Pat. No. 7,532,537 brought by Inphi (IPHI)), NVET +16.8% (reports results of NV-01 pivotal study in dogs; study met primary endpoint), BIOL +13.3% (Jack W. Schuler, ~20% active stake, discloses entry into standstill agreement), ARWR +7.4% (presents data showing robust sustained anti-viral effects with ARC-520 in Hepatitis B), FCEL +7.4% (still checking), GLPG +6.1% (still checking; rebounding pre-mkt following last week's declines), ARRY +5.5% (Array Biopharma and Pierre Fabre announces collaboration to develop and commercialize Array's late-stage novel oncology products, binimetinib and encorafenib), PLX +5.2% (files for $100 mln mixed securities shelf offering; also initiates a Phase III Clinical Trial for PRX-102 to treat Fabry Disease, following a successful end-of-phase II meeting with the FDA), NATH +3.6% ( increases the price range of its previously announced Dutch Auction tender offer), MBT +3.2% (cont strength), SODA +3.1% (CEO purchases 30k ordinary shares on the open market), CGIX +3% (Frigate Ventures discloses 6.5% passive stake in 13G filing), IBN +2.4% (outperformer in the Sensex today), SUNE +1.8% (profiled in Barrons), VIPS +1.7% (pre-mkt rebound after last week's declines)

Analyst comments: PRGO +1.8% (upgraded to Buy from Neutral at UBS), BUD +1.8% (upgraded to Outperform at Exane BNP Paribas ), NVDA +1% (upgraded to Buy from Hold at Canaccord Genuity ), ORCL +0.9% (added to Conviction Buy List at Goldman), AV +0.7% (upgraded to Buy at BofA/Merrill
)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: DDS -10.3%, ASTI -7.9%, SORL -4.6%, MOBI -4.6%, AUMN -3.1%

M&A news: HOT -5.1% (Starwood Hotels to be acquired by Marriott (MAR) for ~$12.2 bln, or roughly $79.88/share in cash/stock), SYT -2.8% (weakness pre-mkt, may be giving back gains from Friday after no new news on M&A talks), MAR -1.2% (see HOT)

Select Travel and Leisure related names showing weakness after Paris attacks: CCL -1.9%, EXPE -1.8%, CTRP -1.6%, DAL -1.5%, ALK -1.2%, RCL -0.8%

Other news: CLVS -59% (announces that the FDA requested additional clinical data for use in the efficacy analysis for both the 500mg and 625mg BID dose patient groups for rociletinib), KBIO -52.2% (to wind down operations, engages the Brenner Group to lead efforts), HOT -5.3% ( to be acquired by Marriott (MAR) for ~$12.2 bln, or roughly $79.88/share in cash/stock), FIVE -4.8% (downgraded to Hold from Buy at Deutsche Bank), RPTP -4.8% (provides additional results on RP103, re-iterating there was no difference in the response rate between RP103 and placebo), NBG -1.9% (cont weakness), KKR -1.5% (filess for ~2.63 mln share offering of common units by selling unitholders), TI -1% (Telecom Italia receives request from Vivendi (VIVHY) to supplement the agenda of upcoming shareholders meeting; Vivendi planning to appoint four directors)

Analyst comments: CNHI -4.7% (downgraded to Underweight from Neutral at JP Morgan ), MNKD -3.7% (downgraded to Neutral at Griffin Securities ), BBY -1.4% (downgraded to Sector Perform at RBC Capital Mkts
)

FT : Louis Vuitton stung by China luxury woes


Louis Vuitton is closing what was its first store in the southern Chinese city of Guangzhou and is expected to shut as many as 10 more across the country in coming months, according to people familiar with the matter.
The closures by Louis Vuitton, the most recognised high-end brand in China, are just the latest sign of woes in the country’s luxury sector, which has been hit by a slowing economy and a three-year-long anti-corruption and anti-extravagance political campaign.

“According to my information, 20 per cent of Louis Vuitton’s stores in China will have disappeared by mid-next year: that is a closing rate of about 1 store per month,” said Emmanuele Hemmerle, managing partner at Emmanuele Hemmerle Ltd, a leadership consulting company based in Shanghai.
Closing the store in Guangzhou will leave LV with 50 stores across the mainland, many of them in smaller cities that are struggling with a pronounced slowdown in growth.
Rustbelt cities such as Harbin and Shenyang that have been particularly affected by China’s slowdown each have two or three LV stores and it is cities like these where the French brand is planning to close outlets, according to people familiar with the matter.
Louis Vuitton and its parent company LVMH declined to comment.
LVMH executives said last month that demand from Chinese customers for all of their products in all countries around the world was flat after growing at double-digit rates in the first six months of the year.
That news will worry all global luxury brands since the fall in luxury buying inside China has so far been partly offset by a big increase in purchases by Chinese tourists travelling abroad, particularly to Japan and Europe.
The LVMH executives blamed stock market turmoil in China in July and August for the weak Chinese buying.
They also acknowledged that overall sales of their products in Asia, excluding wines and spirits such as Moet champagne and Hennessy cognac, fell by more than 9 per cent in the third quarter with sales in China of LV in particular “suffering”.
“We may be closing down a couple of stores in China where we have two stores in second-tier cities,” Jean-Jacques Guiony, chief financial officer of LVMH, said on the sales call last month.
Many western luxury brands, led by LV, expanded rapidly in China over the past decade in an attempt to capitalise on the country’s burgeoning population of “bao fa hu”, as the nouveaux riches are called.
But the anti-corruption campaign launched by President Xi Jinping in late 2012 has dented demand for all types of luxury goods, long popular as bribes and gifts for government officials.
Some brands, particularly Louis Vuitton, have also fallen out of favour amongst China’s increasingly worldly and sophisticated consumers, who see them as commoditised and overpriced.
“To a certain extent LV has been suffering from brand over-exposure; having so many stores in China and particularly in these lower-tier cities doesn’t make sense economically but is also not very good for the brand,” said Torsten Stocker, partner at consulting group AT Kearney.
Just 18.8 per cent of survey respondents in China’s first-tier cities such as Beijing, Shanghai and Guangzhou said LV was the luxury brand they most aspired to own, compared with 38.3 per cent of consumers in smaller, poorer cities, according to data from FT China Confidential.
A separate China Confidential annual survey showed just 10.7 per cent of Chinese travellers abroad bought an LV-branded item on their most recent trip abroad, down from 15.5 per cent in the 2014 survey.
The decline was particularly pronounced amongst high-income travellers, with just 12.9 per cent of households with annual income above $56,500 buying LV on their most recent trip, compared with 24.3 per cent a year earlier.

(MS) Global Luxury Goods : More Binary Outcome in Era of No pric

The shift to global pricing is under way – the grey market and shopping habits of millennials are catalysts for change. We assume negative pricing in 2016-17 driven by Asia, with a more binary performance among peers in a low growth environment. Our EPS forecasts are 8% below consensus in FY17.

A broken pricing model to disrupt growth... As we set out in our January
26 report, pricing growth for the luxury peers historically accounted for ~25%
annual growth on our estimates, but this has now almost disappeared. We
think regional price lists look dated in a digital era, and greater transparency
will deem brands as 'overcharging' in certain regions. Our base case assumes
~15% price deflation in Asia over the next two years. We consider the digital
proposition across the major brands as this is key to attracting new consumers
– however, it will also accelerate the move towards global pricing, we believe.

This is no 'recessionary' scenario, but we see risks of a lower growth
environment which will require a new 'cost culture'. We see ~5%
average annual sales growth in 2016-19 and ~8% in EPS, but this compares to
~10% and ~16% pa, respectively, over the past five years. We also now
anticipate a wider divergence in performance across peers (2016e EPS growth
range -6% to +15%). Managing brands for growth is clearly the priority, but
companies will need to embrace greater cost control. We forecast sector
margins to be broadly flat in 2015-17, but this masks the -320bp decline we
expect for the more mature core European luxury brands.

There should be winners – we upgrade Richemont to OW. In line with our
prior analysis, we see the jewellery category as largely immune to the pricing
debate. Risks still exist (particularly in HK/China), but the risk/reward now
looks more compelling and watches may have troughed. We see a 12% EPS
CAGR in 2016-18 (cal), one of the highest among peers. We stay OW LVMH,
which we see as one of the cheapest quality assets in global consumer.

Risks are greatest for those brands not embracing change fast enough,
in our view – Swatch, Prada, Tod's, and Coach. Despite material
underperformance so far this year, we lack conviction in a turnaround. While
different product categories, there is a common theme – we think they risk
being too 'traditionalist', with existing strategies not focused enough to engage
with younger consumers in a highly competitive market.

Where we could be wrong? We may be too bearish on our pricing outlook –
in the past, brands have been price 'setters'. A more pronounced recovery
within HK/China would make our sales and margin forecasts too conservative.
Our strategists are more constructive on cyclicals and exposure to EM overall,
but agree that valuations remain demanding in global luxury.

(MS) Global Luxury Goods : More Binary Outcome in Era of No pric

The shift to global pricing is under way – the grey market and shopping habits of millennials are catalysts for change. We assume negative pricing in 2016-17 driven by Asia, with a more binary performance among peers in a low growth environment. Our EPS forecasts are 8% below consensus in FY17.

A broken pricing model to disrupt growth... As we set out in our January
26 report, pricing growth for the luxury peers historically accounted for ~25%
annual growth on our estimates, but this has now almost disappeared. We
think regional price lists look dated in a digital era, and greater transparency
will deem brands as 'overcharging' in certain regions. Our base case assumes
~15% price deflation in Asia over the next two years. We consider the digital
proposition across the major brands as this is key to attracting new consumers
– however, it will also accelerate the move towards global pricing, we believe.

This is no 'recessionary' scenario, but we see risks of a lower growth
environment which will require a new 'cost culture'. We see ~5%
average annual sales growth in 2016-19 and ~8% in EPS, but this compares to
~10% and ~16% pa, respectively, over the past five years. We also now
anticipate a wider divergence in performance across peers (2016e EPS growth
range -6% to +15%). Managing brands for growth is clearly the priority, but
companies will need to embrace greater cost control. We forecast sector
margins to be broadly flat in 2015-17, but this masks the -320bp decline we
expect for the more mature core European luxury brands.

There should be winners – we upgrade Richemont to OW. In line with our
prior analysis, we see the jewellery category as largely immune to the pricing
debate. Risks still exist (particularly in HK/China), but the risk/reward now
looks more compelling and watches may have troughed. We see a 12% EPS
CAGR in 2016-18 (cal), one of the highest among peers. We stay OW LVMH,
which we see as one of the cheapest quality assets in global consumer.

Risks are greatest for those brands not embracing change fast enough,
in our view – Swatch, Prada, Tod's, and Coach. Despite material
underperformance so far this year, we lack conviction in a turnaround. While
different product categories, there is a common theme – we think they risk
being too 'traditionalist', with existing strategies not focused enough to engage
with younger consumers in a highly competitive market.

Where we could be wrong? We may be too bearish on our pricing outlook –
in the past, brands have been price 'setters'. A more pronounced recovery
within HK/China would make our sales and margin forecasts too conservative.
Our strategists are more constructive on cyclicals and exposure to EM overall,
but agree that valuations remain demanding in global luxury.