Luxury is bid again - some asides on it
Kering +10%, LVMH +9%, Burberry +8%, Richemont +8%, L'Oreal +6%
SXXP +1.3%
We reiterate caution for Kering and Burberry; China stimulus tailwind will not be captured in 3Q earnings - only in mgmt comments around any improvement in trading conditions for October and a now likely bullish outlook for the Q4 backdrop. Outside China, financial conditions did continue to loosen on average for the US while Euro conditions were flat vs 1H. That needs to balance with continued goods deflation/pricing in the US (yoy).
To be clear we do think Kering will hold-onto A- ratings for now (S&P looks at it favourable, will likely shore up BS with leasebacks if it needs) but we would still price it to BBB+ ratings on lack of any upside.
Good macro is not a rising tide that lifts all boats - at least for luxury. These are goods retailing well above any "tangible" measure of value - the intangible is built through marketing and creative prowess to stay relevant. As much as Kering and Burberry blamed the weaker Chinese consumer for their double digit falls this year, Birkenstock grew sales in the country by +25% - and if Birk isn't a lux enough comp at the other end of town, sector margin leader Hermes reported +10% growth in Asia ex. Japan while Prada saw +12%. Prada's Miu Miu brand - which has roots in Asia and among the youth - doubled yoy and is an example of what the other side of Burberry/poor brand-traction looks like.