StockTalk (6.13): Luxury Goods Stocks - Ideal for Buying or Have They Already Peaked?

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Investment research and fund rating agency Morningstar released a report on Monday (June 12) stating that while luxury goods sales have been impacted by the pandemic, they recovered rapidly in 2021 and 2022, and surpassing pre-pandemic levels. This is mainly due to the resilience of incomes among luxury consumers and the stable value retention of luxury goods. However, the overall performance of the luxury industry is mixed, with LVMH's fashion and leather brand holding a larger market share, while Gucci, owned by Kering, has experienced a slowdown in growth. In terms of profit, luxury companies' profit margins soared to pre-pandemic levels in 2021, but due to increased marketing costs and inflationary pressures, profit margin growth in 2022 is expected to be more moderate. Since 2020, prices for major luxury brands' products have seen single-digit to low double-digit increases. In addition, offline shopping saw a recovery last year, and rental prices worldwide have risen moderately. Except for the United States, most major streets' rental costs remain lower than pre-pandemic levels.

However, with the recovery of domestic and travel consumption in China, rental prices are expected to accelerate in 2023. The report noted that luxury goods sales in the Americas showed signs of slowing down in the fourth quarter of 2022, with even greater declines in the first quarter of this year. Nevertheless, after the lifting of pandemic restrictions, Chinese consumer spending is expected to make up for the decline in consumption in developed markets. After all, before the pandemic, nearly two-thirds of luxury purchases by Chinese consumers were made overseas.

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