PARIS — Amid doom and gloom aplenty, the luxury goods sector got a blast of good news from investment firm HSBC, whose analysts contend that robust demand from Asia, the Middle East and Russia should boost top-line growth by 6 percent and keep earnings per share in the high single digits for all players in 2008.
“We are not surrendering to the gloomy scenario currently factored into most luxury stock evaluations,” Antoine Belge and Erwan Rambourg wrote in a research report issued Friday. “In light of recent economic and financial market developments, we believe we need to revise down our forecasts. Nevertheless, the trends we are forecasting are still far from a nightmare for the luxury goods industry.”
The analysts upgraded Burberry to “overweight” and Hermès to “neutral,” while maintaining overweight ratings on PPR, LVMH Moët Hennessy Louis Vuitton and Luxottica Group.
Continued store expansion, especially in fast-growing areas, should drive growth this year, with Europe considered pivotal in determining the extent of the slowdown, the report said, estimating U.S. growth in luxury would slow to 7 percent at constant exchange rates compared with 15 percent in 2007.
“In the U.S., the ‘psychological’ element of the feel-good factor is as important as the economic element,” Belge and Rambourg note. “Hence, wealthier individuals experiencing an ‘emotional recession’ tend to scale back their purchases, even though they can still financially afford them.”
By category, HSBC predicts, “watches should slow significantly, while leather goods should be more stable.”