Interest in luxury fashion is fading, said RBC, with sporting goods coming into focus.
Investor sentiment has normalised across luxury brands, with the market impacted by China’s growth compared to the rest of the world, the speed of Chinese travel recovery, pricing support and margin sustainability at LVMH and Richemont.
With that being said, the broker believes French company Kering, which owns Gucci and Balenciaga, offers the greatest upside potential thanks to strategic changes at Gucci and attractive valuation, as well as Puma and Dr Martens PLC (LSE:DOCS).
Sporting goods are coming back into fashion, with website traffic trends “buoyant”, with Puma leading the charge with 58% more visits in February compared to last year.
Nike and Adidas are also up roughly 25% on last February for website traffic visits.
The broker said that it remained at a neutral ‘sector perform’ rating on Adidas as it shifts back towards wholesale and management attempts to regain lost market share.
However, the broker’s preference in sporting goods is Puma, which it believes offers “the strongest revenue/EBIT” five-year growth outlook.
Nike is also ranked as ‘outperform’, with the broker highlighting strong brand heat and potential for faster margin recovery than estimates.
On Dr Martens, a share price target of 250p offers plenty of potential upside to the last close at 134p, with another ‘outperform’ rating but some doubts were noted.
The revenue outlook has been rebased with profit warnings in November and January, with low teens growth now expected, so management “needs to build confidence in its ability to execute” as the market seems to see a risk of further profit warnings and earnings seen as unsustainable.
