UBS downgrades Swatch Group and Moncler, citing weak demand in luxury markets. By Investing.com

Investing.com — UBS downgraded shares of Swatch Group AG (SIX:) and Moncler (LON:), citing weak demand in key luxury markets, particularly China, and a challenging outlook for the luxury goods sector overall.

The brokerage cut its rating on Swatch to “sell” from a previous “neutral” and cut its 12-month price target to CHF 127 from CHF 178.

Similarly, UBS downgraded Moncler to “neutral” from “buy,” citing weakening demand and a challenging macroeconomic environment weighing on consumer spending.

Swatch is facing a prolonged recession due to its heavy exposure to China and structural inefficiencies. Swatch’s biggest market, China, which accounts for about 35% of its sales, continues to see weak demand.

UBS expects Swatch’s EBIT margin to fall to around 9.5% by 2028, down significantly from its previous peak of 25% in 2012.

UBS also cut its earnings estimates for Swatch, with a 24% cut to earnings per share for FY24, and even bigger cuts of 47% and 48% respectively in FY25 and, respectively, 26.

UBS cited weak data from the sector, particularly in Asia, where Swatch has high exposure. It also pointed out that recent Swiss Watch Export data showing growth was likely skewed by one-off events such as the Watches & Wonders exhibition in Shanghai.

UBS forecasts a 12.6% revenue decline for Swatch in FY24, followed by a marginal recovery of 0.7% in FY25.

The company’s EBIT is expected to fall sharply by 63.1% in FY24, before recovering modestly in the coming years.

Moncler, another key luxury player, is also facing challenges, particularly in its core markets of Europe and China.

The company has benefited from high demand for luxury outerwear, but UBS analysts warn that demand is dampened as consumer spending in key markets slows due to macroeconomic pressures.

UBS downgraded Moncler cut its 12-month price target to 53 euros from 63 euros, citing concerns about a prolonged decline in demand for aspirational luxury brands.

UBS research indicates that the recovery in China is likely to take longer than expected, which is a critical market for Moncler.

Additionally, slowing luxury demand among aspirational consumers in Europe and the US is putting further pressure on Moncler’s sales outlook.