(News Bulletin 247) – Several research offices took stock this week of the prospects of European groups for next year. UBS judges that the sector will still suffer from “demand fatigue”. But HSBC for its part considers that it is “time to get on board”, banking on a rebound in growth in the United States.

Luxury is about to complete a year 2024 that will not go down in history. Weighed down by a pronounced slowdown in demand, the sector found itself under pressure.

The evolution of growth (excluding currency and scope effects) of LVMH illustrates this quite well: 10% in the fourth quarter of 2023, 3% in the first quarter of 2024, 1% in the second, -3% in the third.

On the stock market, Hermès is certainly surviving, thanks to its formidable resilience, gaining 18.3% over the whole of 2024. But this is not the case for LVMH (-14%) and even less for Kering (-40% ) or the British Burberry (-34%).

What should we expect for 2025? Several design offices looked into the issue this week.

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“Signs of weariness”?

UBS remains very cautious. “We think it may be too early to become optimistic, as we see limited room for a significant re-acceleration of organic sales growth needed to drive up valuations and earnings,” explains the Swiss bank. “Signs of ‘luxury fatigue’, with consumers increasingly questioning the value for money offered by certain brands, lead us to believe that a potential recovery may only come in 2026,” she adds.

This “fatigue”, which follows significant increases in volumes and prices, is likely to persist, considers UBS.

Deutsche Bank is a little more optimistic. “We believe it is now possible to see some upgrades to consensus earnings forecasts through 2025 and 2026. Investor positioning in the luxury sector remains underweight in our view and we expect that it improves during the year 2025,” continues Deutsche Bank.

On the basis of a survey carried out by it, the German establishment considers that the pronounced slowdown in China is more cyclical than “structural” even if it could take one to two years before seeing the Chinese consumer return to behavior more in line with the past. In Europe, Deutsche Bank notes that sluggish economic forecasts do not allow for an increase in local demand, and that growth should thus be driven by the return of Chinese tourists.

In the United States, the increase in customs tariffs desired by President-elect Donald Trump could only constitute a “small difficulty”, she judges. “Luxury consumption in the United States is finally starting to realize its potential and the country is likely seen as the hotspot for most brands in 2025,” adds Deutsche Bank.

Time to “board”?

Interesting point: Deutsche Bank also notes that the price increases since 2019 have been “striking” leading some consumers to “change their perception of value”. Rather than prices, Deutsche Bank believes that luxury groups have more control over the “mix”, that is to say the distribution of sales towards more expensive and better-margined products.

HSBC, for its part, considers that it is “time to get on board” in the luxury sector. The establishment therefore judges that the time has come to become positive again on the compartment and to “expose itself to the rebound in sales that we anticipate in 2025 thanks to the resumption of demand from American customers and the stabilization of the demand from Chinese customers.

The Sino-British bank expects a rebound in like-for-like growth of 4% next year on a like-for-like basis, for the luxury groups in its coverage, after a decline of 1% in 2024.

This growth would therefore be mainly driven by the United States, a region where HSBC sees sales increasing by 7% in 2025 (compared to 3% for Europe and 0% for China). The bank notes that the first signs of improvement in the United States are perceptible at the end of the year, after the outcome of the American elections.

“The uncertainty of the elections having passed (…) American consumers are no longer holding back, the stock markets have never been so high, which is generally strongly correlated with the consumption of luxury products, the rates of interest is falling, which should help ambitious consumers, and luxury companies are focusing on the United States, which remains an under-penetrated market in terms of stores, HSBC lists.

Outside the United States, the situation “would not improve but would not get worse”, which would therefore allow growth to resume. At the dawn of this recovery, it is “the best time to be exposed to luxury”, concludes HSBC.

HSBC bets on LVMH and Hermès

What values ​​should be prioritized in this context? HSBC on Monday raised its buy advice on Hermès and LVMH versus “hold” previously. Hermès should once again deliver the best growth in the sector next year, with like-for-like sales growth expected at 11.1% in 2025 by the establishment.

The bank explains that the company outperforms its competitors in difficult times, thanks to its waiting lists for its products and its “economically stable” clientele, but also in more favorable times, thanks to its non-leather goods products.

As for LVMH, its strong exposure to the United States (25% of revenues according to the bank, compared to 19% for Hermès and 22% for Kering), a region which should therefore record the strongest growth, explains the change in opinion. from HSBC. The bank anticipates growth of 4% for LVMH in 2025. In addition to Hermès and LVMH, HSBC is also buying Prada, Richemont, Moncler and Burberry.

Deutsche Bank, for its part, prefers groups that are in a recovery phase and are therefore taking initiatives to revitalize their brands. This is the case of Kering, which is currently trying to breathe new life into Gucci. The German bank notes that the new collections of artistic director, Sabato de Sarno, experienced a “mixed” reception in 2024 but which improved as the year progressed. Deutsche Bank estimates that Kering should narrow its performance gap with its competitors in 2025. This should allow its stock to progress, as investor confidence in the stock is currently very low.

UBS prefers Hermès and Richemont

Deutsche Bank’s other favorite stock, Burberry, presents a scenario comparable to that of Kering. New chief executive Joshua Schulman announced a new strategic plan in November that plans to return to the group’s fundamentals and revive its desirability by elevating its brand.

“Burberry’s new strategic plan makes a lot of sense to us and focuses the brand on its historic strengths while correcting some of the pricing mistakes of the past,” said Deutsche Bank.

Otherwise, Deutsche Bank is to “keep” on LVMH and Hermès.

More cautious, therefore, than its colleagues, UBS believes that the polarization between brands and categories will benefit the strongest names as well as “hard luxury”, that is to say jewelry and watches (as opposed to ” soft luxury” like leather goods).

Which leads him to be a buyer on Hermès, which displays the best performance in leather goods and is exposed to the wealthiest customers. The Swiss bank is also a “buy” on Richemont, due to its positioning in jewelry.

Apart from Hermès and Richemont, its two favorite stocks, UBS is also buying Prada, Hugo Boss and Brunello Cucinelli. The Swiss bank is “neutral” on LVMH and Kering.