Lux in flux: Highlighting the 4 big themes for 2016; LVMH up to Buy
We believe 2016 will see the earnings cycle for luxury bottom out and that there are selective buying opportunities in the sector following a 16% share price fall on 10% EPS downgrades over the LTM. We forecast sales growth to slow to +3.4% in 2016 (from +4%-5% over the past 2 years) resulting in a c.3% cut to our FY16-17 estimates. As China continues to dominate and the consumer shifts to digital we believe the operating environment has become more complex – we are less concerned on demand for luxury, but have increased concerns on margins. We advocate investments in the most durable cash generators in luxury (LVMH and Richemont) and highlight 4 dominant themes we see for 2016.