Disclosures best placed stocks within 4Cs are LVMH Buy Kering Buy Moncler Hold and Herm s Hold Increase most TPs on lower cost of equity despite coronavirus related cut in estimates 1 Equities Global Luxury Goods February 2020 Q4 2019 was very solid in luxury despite headwinds in Japan and Hong Kong and our only concern entering 2020 was valuation The coronavirus will impact 2020 earnings but at this stage we don t see much reason to be fearful long term The luxury conversation should be driven by the 4Cs Chinese more than ever short term given travel issues Channels Consolidation and Conscience We are increasing most TPs on lower cost of equity despite lower growth factored in to take into account coronavirus impacts on travel and spending Best placed stocks within 4Cs are LVMH Buy Kering Buy Moncler Hold and Herm s Hold 4Cs to continue shaping the sector debate In our 7 January 2020 luxury sector outlook 4C the future we briefly introduced four key themes we believed should shape the sector in 2020 Chinese Consolidation Channels and Conscience In this new report we expand on these four themes 1 China New consumers should continue to drive growth in 2020 Chinese citizens account for c40 of sector sales and the bulk of growth Concerns around the coronavirus are thus legitimate and while this concern could affect existing purchasers we see good visibility of further recruitment and a sales rebound in H2 20 2 Channels while most investors are focused on e commerce for the future of the luxury industry we believe travel retail and China bricks and mortar should be greater drivers 3 Consolidation scale and M FY March n 1 FY June n 1 Summary of HSBC EBIT estimates changes and comparison with Bloomberg consensus 2020e 2021e HSBC HSBC HSBC HSBC m Currency New Old Consensus Change vs cons New Old Consensus Change vs cons Burberry GBP 400 478 468 16 14 463 544 517 15 10 Canada Goose CAD 207 269 219 23 5 256 339 283 24 9 Capri USD 767 871 778 12 1 882 963 863 8 2 Ferragamo EUR 126 146 151 13 16 173 183 176 5 2 Herm s EUR 2 513 2 609 2 551 4 1 2 789 2 847 2 788 2 0 Hugo Boss EUR 351 364 356 4 2 387 395 386 2 0 Kering EUR 5 030 5 280 5 068 5 1 5 600 5 800 5 569 3 1 LVMH EUR 12 386 13 285 12 728 7 3 14 497 14 882 13 914 3 4 Moncler EUR 535 570 544 6 2 603 637 612 5 2 Prada EUR 342 396 367 14 7 452 475 432 5 5 Richemont EUR 1 835 2 030 2 118 10 13 2 020 2 250 2 354 10 14 SMCP EUR 128 139 134 8 4 153 161 151 5 1 Swatch CHF 960 1 275 1 096 25 12 1 197 1 405 1 184 15 1 Tapestry USD 800 917 824 13 3 907 974 915 7 1 Tod s EUR 16 28 20 42 20 50 54 38 7 33 Source HSBC estimates Bloomberg consensus as of 18 February 2020 FY March n 1 FY June n 1 Summary of estimates Summary of HSBC EPS estimates changes and comparison with Bloomberg consensus 2020e 2021e HSBC HSBC HSBC HSBC m Currency New Old Consensus Change vs cons New Old Consensus Change vs cons Burberry GBP 0 76 0 91 0 86 16 12 0 88 1 03 0 95 15 8 Canada Goose CAD 1 31 1 75 1 44 25 9 1 72 2 30 1 83 25 6 Capri USD 4 45 4 94 4 50 10 1 4 85 5 27 4 93 8 2 Ferragamo EUR 0 50 0 58 0 58 14 14 0 71 0 75 0 68 6 4 Herm s EUR 15 74 16 35 16 27 4 3 17 66 18 03 17 87 2 1 Hugo Boss EUR 3 68 3 84 3 54 4 4 4 09 4 19 3 82 2 7 Kering EUR 27 67 28 71 27 76 4 0 31 16 31 88 31 06 2 0 LVMH EUR 15 40 16 51 16 25 7 5 18 20 18 75 18 05 3 1 Moncler EUR 1 43 1 50 1 47 5 3 1 62 1 70 1 67 4 3 Prada EUR 0 08 0 10 0 09 15 5 0 11 0 12 0 11 5 4 Richemont CHF 2 78 3 08 3 18 10 13 3 07 3 43 3 62 11 15 SMCP EUR 0 99 1 07 0 94 7 6 1 25 1 32 1 11 5 13 Swatch CHF 13 78 18 26 15 18 25 9 17 24 20 13 16 87 14 2 Tapestry USD 2 24 2 58 2 21 13 1 2 51 2 69 2 60 7 3 Tod s EUR 0 29 0 54 0 18 46 65 1 04 1 13 0 48 7 116 Source HSBC estimates Bloomberg consensus as of 18 February 2020 FY March n 1 FY June n 1 5 Equities Global Luxury Goods February 2020 Executive Summary 1 Summary of estimates 4 Calendar of events 6 Outlook and valuation 7 1 Chinese 12 2 Channels 15 3 Consolidation 18 4 Conscience 23 Company profiles 29 Burberry BRBY LN 30 Canada Goose GOOS US 36 Capri CPRI US 42 Herm s RMS FP 48 Hugo Boss BOSS GR 54 Kering KER FP 60 LVMH MC FP 66 Moncler MONC IM 72 Prada 1913 HK 78 Richemont CFR SW 84 Salvatore Ferragamo SFER IM 90 SMCP SMCP FP 96 Swatch UHR SW 102 Tapestry TPR US 108 TOD S TOD IM 114 Disclosure appendix 121 Disclaimer 124 We acknowledge the contribution of Congxiao Zhang1 an intern in our Paris office and Akshay Gupta1 a senior associate in our India office in the production of this report 1 Employed by a non US affiliate of HSBC Securities USA Inc and are not registered qualified pursuant to FINRA regulations Contents Equities Global Luxury Goods February 2020 6 Calendar of events Corporate calendar of events through H1 2020 Company Type of Event Date Burberry FY 2020 results 14 May 20 Burberry Q1 2021 sales Mid Jul 20 Canada Goose Q4 2020 results 27 May 20 Canada Goose Q1 2021 results 12 Aug 20 Capri FY 2020 results 27 May 20 Capri Q1 2020 results 5 Aug 20 Herm s FY 2019 results 26 Feb 20 Herm s Q1 20