Apparel, footwear and jewelry: reasonably priced for affordable luxury names

We are introducing our new 2023 price targets and new estimates for affordable luxury names in our Apparel, Footwear and Jewelry coverage, re-establishing our bullish view on companies that continue to prove their resilience despite the macro backdrop. . We incorporated recent results, new macroeconomic assumptions and evaluated different scenarios with regard to income tax subsidies.

In summary, we maintain the Buy rating for Arezzo, Grupo Soma and Vivara and introduce new price targets: ARZZ – TP R$97/sh. of R$116.3/sh, SUM – TP R$14.6/sh. R$18.7/sh and VIVA – TP R$32/sh. in
R$31.1/sh.

Valuation: Don’t expect a bargain, but an affordable price for affordable luxury names

VIVA, our top pick, is the cheaper stock, trading at a ’23 P/E of 13.8x, which compares to our target multiple of 14.6x and 2-year history of 15.8x.

Liquidity has always been an issue for the company, however, considering the nearly 70% improvement over the past six months, ALIVE could trade closer to the all-time high of approximately 20x the other two.

A SUM it trades at a higher multiple, but at the biggest discount to historical levels: ’23 P/E of 14.9x against our target multiple of 17.5x and 2-year history of 20.5x. However, it is worth noting that the company has the highest execution risk, as it needs to reverse the Hering operation, and is the most benefited by sales tax subsidies on its results.

Finally, the ARZZ has the toughest assessment: P/E ’23 of 16.2x against our target multiple of 19.2x and 2-year history of 20x.

beware of risks

The most relevant risk to be monitored are discussions on the fiscal agenda and its impact on fiscal benefits and subsidies, in addition to the macro and execution.

In our models and scenarios, we only simulate the impact of withdrawing subsidies on income tax; however, if the benefits were suspended, the negative impact would be even more severe.

With regard to execution, the risks to be monitored would be: i) brand recognition/reputation; ii) seasonality and adherence to charges; and iii) execution and integration of mergers and acquisitions (especially for SOMA and ARZZ).