Moncler Stock Q4: Don’t Get Carried Away With The Momentum (OTCMKTS:MONRF)

Since I wrote about the Italian luxury outerwear brand Moncler (OTCPK:MONRF) (OTCPK:MONRY) in October last year, the stock is up by 28%, which flies in the face of my Hold rating on it at the time. Even though the company’s robust revenue growth for the first half of 2023 (H1 2023) and potential for margin upside for the remainder of the year looked promising, there were two reasons for the Hold rating.

One, its market multiples were elevated compared with peers and two, the momentum was against luxury stocks at the time. However, the sector as such has seen an uptick since, especially in 2024 so far, with the S&P Global Luxury index up by 6.8% year-to-date [YTD] compared to the 7.3% rise over the past year. In fact, most big luxury stocks have surpassed Moncler in price performance over the past six months (see chart below).

At first glance, this comparison sounds like a positive for Moncler. But there’s much to unpack in this story, including its recently released final quarter (Q4 2023) full-year 2023 results. Here I look at:

• The key takeaways from the latest numbers
• What they and the company’s outlook suggest for 2024
• And where the market multiples now place Moncler compared to peers

4 takeaways from 2023 results

The company’s numbers continue to look good for 2023. But the overarching theme really is a split between H1 2023 and H2 2023, with significant support emerging from the performance in H1 2023 followed by some weakness in H2 2023. The only exception is the operating margin expansion in H2 2023. Specifically, here are the four key takeaways from the results.

#1. 2023 revenue growth stays strong: Even though there was a softening in revenue growth to 17% at constant exchange rates [cfx] compared to 25% for 2022, on its own it remains alright considering the softening in luxury sector demand. In fact, it has seen the fastest growth among key luxury companies after Hermès (OTCPK:HESAY) at 21% for 2023. Even more significant is the fact that its growth improved somewhat in Q4 2023 to 12.7% year-on-year (YoY) after slowing down to just 7%.

#2. The geography advantage: Moncler benefited from the spurt in its big Asia market (see chart above) as demand from China in Q4 2023 saw a particular acceleration on a low base of 2022 when the market was facing COVID-19 restrictions. It also saw a relatively limited impact from waning sales in the Americas on the relatively limited contribution of the market to its revenues. It’s worth noting though, that even Americas’ demand growth turned positive in the final quarter.

#3. Operating Margins improve in H2 2023: Its full-year 2023 operating margin at 30% comes as a relief after a 19.2% reported in the first half of 2023 (H1 2023). There has been significant historical seasonality to its margins, so some improvement was expected but at a time of softening demand, it couldn’t be taken as a given (see discussion on ‘Why margins are relatively low’ in the first link of this article). The full-year margin now slightly exceeds that in 2022 at 29.8%. Robust operating margins are one of Moncler’s highlights as it’s second only to Hermès at 42%, much like revenue growth.

#4. Net income margin softens: Net income margin, too, improved from 12.8% in H1 2023 to 20.5% for 2023. However, it did soften from the 2023 levels of 23.3%. The difference, however, arises only because of a positive tax impact last year on the brand value realignment of Stone Island. The latest margin is not significantly different from the average of 20.7% over the past decade. In other words, there’s no sustaining fundamental reason to expect net income to decline based on the latest figures.

Brace for growth slowdown in 2024

The question now is whether Moncler can continue to grow at the same rate as in 2023. It appears unlikely for three reasons. One, growth in H2 2023 slowed down to 9.7% compared with 24% in H1 2023, indicating that even with some bounce back in growth in Q4 2023, overall there’s still a significant slowdown.

Two, while not providing a quantitative outlook, Moncler does say “Entering 2024, the global macroeconomic and geopolitical landscape remains uncertain and unpredictable”, indicating that growth softening can continue. Finally, analysts’ estimates on Seeking Alpha further confirm this, penciling in an 8% revenue growth in 2024 in USD terms, which translates into 9.7% in EUR terms, its home currency.

The market multiples

With analysts’ estimates coinciding with H2 2023 revenue growth, I assume this is exactly what growth will come in at for estimating the forward multiple. Assuming that the net income margin also remains at its 2023 level of 20.5%, the net income would come to EUR 659.2 million (USD 715.5 million). This is an improved income growth of 7.7% from under 1% in 2023, even if revenue growth slows down.

However, the forward price-to-earnings (P/E) ratio is still at a fairly high 27.6x. For reference, this is higher than the 25.4x level the last time I checked. Further, Moncler’s trailing twelve months [TTM] P/E ratio at 33.5x is now higher than the 26.1x when I last wrote. It’s also higher than the numbers for peers (see chart below).

What next?

Going into the rest of 2024, the demand conditions remain unconvincing for not just Moncler but the luxury sector as such. The growth slowdown in the US is visible in luxury demand and concerns about China’s recovery don’t help either. A cooling-off is already visible in the company’s revenue growth in H2 2023.

Even then, if Moncler can sustain its net margin, its net income can rise faster than last year. This, however, doesn’t translate into a favourable forward P/E, which is higher than its peers.

It does have the advantage that its sales to the US are much lower than those of its peers, which can insulate it from a slowdown there. It also has superior revenue growth and operating margins compared to peers save Hermès. However, that advantage is already captured in the premium on the stock right now.

With the impressive price rise in the past months, it’s easy to believe this can continue. But it was more due to a pickup in luxury sector stocks than anything fundamental. To this extent, the price momentum can still take a turn for the worse for now. For this reason, I’m retaining a hold rating on Moncler.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.