MARKET REPORT: Poor outlook for luxury goods sector, HSBC warns

A gloomy report about the luxury goods industry by analysts at HSBC laid bare the struggles facing the sector.

The report, Goodbye Stellar Growth, hit British fashion house Burberry, with its shares falling 3.3 per cent, or 50p, to 1454p.

HSBC warned that three years of ‘exceptional growth’ – some fuelled by revenge buying following the post-pandemic reopening – was coming to an end.

The investment bank expects sales across the sector to rise by just 8 per cent over the next two years following a 35 per cent leap in 2021, 15 per cent in 2022 and 11 per cent so far in 2023.

‘Slowing momentum rarely is supportive for stocks in this sector,’ the HSBC analysts said in their report.

Fashion victim: Shares in British fashion house Burberry fell 3.3% after HSBC's gloomy report about the luxury goods industry

Fashion victim: Shares in British fashion house Burberry fell 3.3% after HSBC’s gloomy report about the luxury goods industry

The bank maintained its ‘hold’ rating on Burberry but cut the target price on the stock to 1750p from 2200p.

But there was better news for Watches of Switzerland as HSBC kept its ‘buy’ rating and raised the target price to 759p from 630p.

It said the company’s increased focus on jewellery and efforts to reduce its reliance on Rolex should bode well. Watches shares rose 3.8 per cent, or 23p, to 623p.

The FTSE 100 inched down 0.07 per cent, or 5.46 points, to 7455.24 and the FTSE 250 lost 0.3 per cent, or 51.55 points, to 18387.

Sterling hit a three-month high against the dollar, trading above $1.27 for the first time since late August, as the outlook for interest rates remained in sharp focus.

Investors are increasingly convinced rates in the US have peaked, weakening the dollar on international currency markets.

Christoper Waller, one of the most hawkish rate-setters at the US Federal Reserve, added fresh downward momentum to the greenback when he suggested rates were unlikely to rise advance and could even be cut.

Stock Watch – Supreme

Supreme hiked its forecasts as it cashed in on supplying a branded vape to the likes of Tesco and WH Smith.

The AIM-listed firm, which also sells batteries, lights and protein shakes, said its distribution of ElfBar helped first-half revenues soar 63 per cent to £105.1million while profits nearly tripled to £12.3million.

Supreme is forecasting revenues of £210million to £225million for the full year and profits of £32million to £35million – well ahead of City expectations. 

Shares surged 13.2 per cent, or 14.5p, to 124.5p.

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By contrast, Bank of England officials continued to talk down the prospect of a rate cut in the UK. Jonathan Haskel, a member of the rate-setting monetary policy committee, said there was no prospect of a cut ‘anytime soon’ while deputy governor Dave Ramsden said rates must remain high ‘for an extended period of time’.

The comments followed similar warnings from a host of central bank officials in recent days including governor Andrew Bailey.

The financial markets appear to be taking note.

Having last week been betting a rate cut could come as soon as May, there is now a less than 50 per cent chance of one in June and a 70 per cent chance it will come in August.

Digital 9 Infrastructure, which invests in data centres and wireless networks, agreed to sell its entire stake in Verne Global to the private equity firm Ardian in a deal worth £456million. It also launched a strategic review. Shares sank 8.6 per cent, or 3.7p, to 39.3p.

Pearson traded lower after analysts at Exane BNP Paribas downgraded its stock to ‘neutral’ from ‘outperform’ and trimmed the target price to 1000p from 1050p.

Shares in the education publisher slipped 3.7 per cent, or 35.8p, to 933.8p.

In his final set of results before retiring next month, Treatt boss Daemmon Reeve said the ingredient maker’s financial year has started well.

He has been at the company for 32 years and at the helm since 2012. Shares inched up 0.6 per cent, or 2.5p, to 452.5p.

Defence group Babcock won two contracts worth £120million to help bolster the UK’s submarine fleet.

Shares slipped 0.4 per cent, or 1.6p, to 396.8p.

Sales at retailer Topps Tiles fell 3 per cent in the first eight weeks of the new financial year as customers cut spending.

Shares, however, proved resilient, and edged up 1 per cent, or 0.45p, to 45.5p.


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