全球奢侈品新冠疫情后繁荣期结束，投资回报率正常化，预计2025财年压力更大

ROIC trends are essential, as improving ROIC correlates with superior TSR: if there was onefinancial measure you want to look at, this is it. We produce an in-depth analysis of ROICdynamics over the past year, following up on previous research.Industry ROIC falls by -260bps to 14.1% in FY24.Lower gross margins and operatingdeleverage drove 70% of the decline. A higher IC burden contributed 25% with recentstore and manufacturing base expansions and NWC increases weighing balance sheets.Industry sales were largely flat. FY24’s ROIC remains above the 20Y average of 12%.ROIC performance diverges significantly in FY24.OnlyPradasaw improved ROIC inFY24 (+126bps to 21.3%), driven by strong top-line growth at Miu Miu.•Stable ROIC performers: EssilorLuxottica(-8bps to 8.9%) andMoncler(-82bps to24.1%) were relatively stable, with strong top-line growth offset by a higher IC burden.•Mixed ROIC performers: Hermès(-665bps to 60%) andRichemont(-340bpsto 24%) offer a more mixed picture. Both companies delivered top-line growthoutperformance in FY24, but have seen margins fall as IC increases. Hermès maintainsits industry-leading ROIC, while Richemont comes in just below Moncler at third place.However, both have likely suffered from operating deleverage as Chinese luxury flockedto Japan to capture lower FX-driven prices, while higher inventory levels (particularlyat Richemont where gold price inflation weighs), and continued store and capacityexpansions have led to lower ROIC.•Deteriorating ROIC performers:LVMH(-266bps to 14.2%),Burberry(-490bps to16%),Kering(-550bps to 8.7%) andSwatch Group(-600bps to 1.5%) all sufferedfrom shrinking top-line and margins. LVMH was the most resilient of the group. AtBurberry, falling sales and margins were partially absorbed by lower IC, as Burberrytrimmed its asset base and cleared inventories. In contrast, Kering and Swatch Group saton largely unchanged IC.Changes in valuations are strongly correlated with changes in ROIC.We combine ourFY25e ROIC forecasts and current EV/Sales multiples to assess current valuations. Weobserve four outliers: Prada and Swatch (seemingly undervalued), and EssilorLuxottica, andRichemont (both seemingly overvalued).•Prada’s depressed valuations reflect its upcoming acquisition of Versace. Stronggrowth at Miu Miu has helped drive ROIC expansion over the past years, but EBIT andIC will likely compress as Prada works to turnaround Versace - even more so, if Miu Miufaded at one point, which is more likely as all brands refresh their creative propositions.Swatch Group’s valuations reflect management’s idiosyncratic approach to financialmarkets and capital allocation: its highly vertically integrated supply chain, across myriadcomponents, has led to high NWC and IC burdens; falling luxury watch demand hasmagnified deteriorating long-term ROIC trends.Continued on the next page...www.bernsteinresearch.com … continued from the previous page•Both EssilorLuxottica and Richemont reflect LT improvements to fundamentals. Weattach more confidence in Richemont’s trend: the disposal of YNAP is now confirmedand the focus on organic growth. EssilorLuxottica valuations reflect the benefits of itsthree-way merger (we use Luxottica’s historical data) and an anticipated accelerationfrom smart glasses and med-techOur FY25e forecasts price in the likely risk of a global recession:we expect industryROIC to take another leg down in FY25e to 13.5%, as industry sales growth declines to-2%. Persistent value for money concerns weigh on soft luxury demand and margins (seeGlobal Luxury Goods: The Value for Money Question) and the nth order impact of the USA’strade policies weigh on consumer feelgood and luxury demand (see Global Luxury Goods:Pricing in a likely global recession).Yet, under FY25’s uncertain macro backdrop and shifting trade deals, we remainopen to the risk of positive inflections and the prospect of upward revisions.Wefavor companies with strong brands that are top-of-mind in their respective categories.These include Moncler (outerwear), Richemont (jewellery), and Hermès (leather goods).Capacity and store expansions that have weighed on Hermès’ and Richemont’s ROIC inFY25 should translate into strong organic growth over the coming years, creating a pathto a ROIC inflection. At Moncler, lift-off at Grenoble (particularly in the US) and Stone Islandwould be needed to drive higher ROIC. 2 BERNSTEIN TICKER TABLETickerRatingBRBY.LNOCFR.SWOEL.FPMRMS.FPOKER.FPMMC.FPOMONC.IMM1913.HK (Prada SpA)MUHR.SWOBIRKMEDMASIAXSPXO - Outperform, M - Market-Perform, U - Underperform, NR - Not Rated, CS - Coverage SuspendedMONC.IM valuation is Reported P/E (x);Source: Bloomberg, Bernstein estimates and analysis.INVESTMENT IMPLICATIONSWe keep our luxury goods sector organic growth forecasts for FY25e at -2%.Even with higher than expected tariffs,we do not believe the first level impact of tariffs are a big deal (see Global Luxury Goods: First level impact of US tariffs —negligible). What concerns