Jefferies and Goldman Diverge on Luxury Industry Outlook

Luxury-goods makers face a choppy near-term outlook, according to Jefferies and Goldman Sachs Group Inc. analysts, though that’s where the similarities in their opinions end.

(Bloomberg) — Luxury-goods makers face a choppy near-term outlook, according to Jefferies and Goldman Sachs Group Inc. analysts, though that’s where the similarities in their opinions end.

While Jefferies’ James Grzinic assumed coverage with only two buy ratings and below-average estimates for 2024, Goldman’s Louise Singlehurst said she sees industry growth outperforming the long-term average over the next couple of years.

Weak Chinese demand remains a headwind for the luxury sector, with Jefferies highlighting both “the lack of recovery in Chinese aspirational spend” and also uncertainty over the pace at which pandemic-hit Chinese mass tourism may recover. Goldman in contrast is more focused on broader global trends.

“We think the bigger debate is whether we are entering a prolonged period of lower growth or a phase where growth can outperform the long-term average,” Goldman analysts led by Singlehurst wrote. “We believe more in the latter.” 

Goldman confirmed its buy rating on French luxury giant LVMH, while Jefferies now rates the stock hold after a change in analyst coverage. According to data compiled by Bloomberg, a vast majority of analysts still see LVMH shares moving higher again, with only one sell and six holds against 28 buy recommendations.

The owner of brands such as Louis Vuitton and Tiffany has seen its shares slide close to 20% from their April peak, even though they are still up 8% since the start of the year. The stock has been partly underpinned by the improving prospects for the US economy, which just a few months ago appeared to be heading for a recession.  

“It’s unclear whether third-quarter reporting will be the trough of newsflow,” Jefferies analysts wrote of the luxury sector overall, “even if sentiment has now thoroughly soured.”

Deutsche Bank, in a separate note, said the Chinese consumer “remains the key driver of the sector, and we expect a slowdown.” It said luxury consumer spending would likely remain under pressure “both domestically and abroad,” and any boost from stimulus would mostly come in 2024. 

READ: The Bull Case for Luxury Shares Is Crumbling: Taking Stock

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