Italian Luxury feedback
We recently spent time with 7 Italian luxury companies just after the profit warning
from Prada, commentary on weaker trading from Richemont and Swatch, and poor
data from Swiss watch exports and Global Blue. The key feedback is that trading is
very volatile with little obvious causality. Overall, the Americas appear to be the
best region with Europe weak due to poor tourism trends. Asia is mixed with the
smaller brands outperforming the more mature brands - China has stabilised, Hong
Kong is in decline, which we expect to continue given the political unrest, while
Korea and Japan are good. We have previously laid out our view that we see a risk of
continued earnings downgrades and a de-rating across the space - we have seen
evidence of this to date but with the sector still trading at a 21% premium to the
market there is little to change our view following the trip. Following the meetings,
we remain Overweight on Ferragamo, which is performing well, we have increased
confidence that Luxottica’s management changes will not materially affect
performance while remaining Underweight on both Tod’s and Prada. In this note we
provide company descriptions and take-aways from our company visits to two noncovered
names, Bruno Cucinelli and Yoox, in order to provide additional insight into
trends affecting the Italian luxury names under our coverage.