MONRY - Moncler: Another Impressive Quarter

2023-05-09 07:17:27 ET

Summary

• The company beats expectations in 2023 Q1.
• Supported revenue generation across the board.
• 45% of the company's stores are located in APAC countries. With a Chinese recovery, Moncler is well-positioned for a solid 2023. Our buy rating is then confirmed.

In 2022, we recorded a remarkable stock price performance of Moncler (MONRF). Since our initial buy rating nicely titled ' Winter is Coming ', Moncler shares are up by more than 77%. Here at the Lab, we were bullish on the fashion industry, and we were the first ones to believe that luxury players will be inflation beneficiaries. Our investment call was also supported by the Chinese recovery story, in detail almost 45% of the company's stores are located in the APAC area.

Italian luxury was positively impacted by LVMH's quarterly data which came out better than expected. The French powerhouse has kicked off the quarterly earnings season with revenues exceeding expectations by more than 7%. Here at the Lab, we remain relatively cautious about the global consumer outlook for the full fiscal year 2023. It is clear that China's reopening should support a significant reacceleration of growth compared to last year, but we believe that the recovery can be more balanced, especially while awaiting the resumption of long-haul travel.

Q1 results comment

Moncler's first quarter delivered top-line sales of €726.4 million with a growth of 23% compared to the same period of 2022. This outcome beats the analyst estimates, whose consensus stopped at €689 million. The positive performance was driven above all by Chinese demand in the COVID-19 aftermath and the EMEA growth (again supported by tourism flow). Q1 results were positively emphasized by Luciano Santel, chief corporate and supply chain officer of the group who explained how China's " performance went very well " and also highlighted the solid growth in neighboring regions. For instance, Hong Kong recorded a positive trajectory (however; it has not reached the 2018 levels). To support our thesis, the company confirmed its medium-long-term financial objectives both in terms of sales and margin set at 30%.

With regard to the quarterly performance of the individual brands, Moncler achieved revenues of €604.8 million, up 28% on an annual basis, thanks to double-digit growth in the direct-to-consumer channel which grew by 34%. In detail, the company's brand recorded a 32% increase in sales in Asia, benefiting precisely from the lifting of the anti-Covid restrictions, a 29% increase in the EMEA area, and a more limited 9% increase in the Americas, due to the significant flow of American tourists who bought outside the region . This was also confirmed in Kering recent analysis. On the other hand, Stone Island which entered the group's orbit at the end of 2022 with a maxi deal worth €1.15 billion, generated sales of €121.6 million in Q1, up 5% at constant exchange rates.

We are extremely satisfied with the results achieved in this first quarter of the year, with Group revenues growing by 23% at constant exchange rates. Both our brands recorded strong double-digit growth in the DTC channel, reflecting their very solid momentum, a strong connection with consumers, and the excellent execution of our strategy" . These were Remo Ruffini's words and this is music to our ears that well supported our investment thesis.

Despite the results beyond expectations, during the Q1 data release, Moncler stock suffered a drop of more than 2%. Here at the Lab, we believe that it would have been improbable that investors would react with surprise even to higher-than-expected numbers, taking into account the recent stock run record evolution.

Conclusion and Valuation

At the same time, Moncler announced the appointment of Robert Triefus as the new CEO of the Stone Island brand. Triefus was a Gucci manager for more than 15 years with the last position as head of the Vault and Metaverse Ventures division. He will start the position in June 2023 and will report directly to the Sportswear Company board of directors.

Looking at the aggregate level, after an average performance of around +20% YTD, the EU luxury goods sector trades at around 28x on twelve months estimates, with a premium of around 15% over the historical average, which already priced in higher earnings growth due to China reopening. However, our sensitivity analysis shows that if Chinese demand were to recover as it already happened in the EU and the US, the valuation would be at a discount. In Q1, there was no disclosure of the company's profitability metric. Therefore, we decided to reiterate our buy rating at €75 per share. The company was of our industry's favorite stocks and here below are our main key takeaways (that are still valid):

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