UPDATE LUXOTTICA

STAY SHORT INTO Q2

Pre Q2 earnings, analysts already seem to have settled for organic growth at the same level as Q1. That leaves the FY guidance of 5%-6% unachievable and as we suggested in our original sell idea we should see downgrades at Q2 as a result of mall warnings from the US and under penetration online.

Consensus thinks we are likely to see cost benefits to help minimise the bottom line impact. The stock however is still on 22x earnings and less than 5% organic for the FY.

This is not enough to justify a 35% sector premium and the stock should continue to de-rate.

Stay short or add. Currently +6.8% abs return.

 

SHORT LUXOTTICA
US RETAIL IN A MESS

Wednesday • 11 May 2016 • 16:16

A number of reasons to be short this one:

Momentum is slowing. Organic growth of 1.8% in Q1 compares to 7.2% Q1 2015, and 2% last quarter. The US (60% of the biz) is clearly in a mess (see GAP warning and MACYs today) and unseasonal weather continues which is likely to make revenue growth targets of 5-6% hard to achieve.

Because of the US tilt, it is very exposed to the EUR in a big way. Given the US now admitting reliance on global stability for rate hikes, we are likely to see more monetary convergence rather than divergence from here, Why couldn’t the EUR trade at 1.20/1.25?

It is listed in Italy. The banks are dying a slow death given NPLs at 20% and NIRP denying them opportunities to make money. The MIB is a good place to be short.

At 23x earnings it has derated, but it is still expensive vs the sector for what would appear to be similar organic growth,

SELL INTO Q2. PT €40.