Mercedes

Company Update:

Due to the continued acceleration of its sales in China, Mercedes cut its financial forecast for the second time this year. The company now expects its EBIT margin to be in the 7.5% - 8.5% range vs 11% previously. With FCF significantly below that of last year. This was triggered by a weaker consumption in China impacting sales including sales in the top-end segment.

We will have to significantly adjust down our numbers.

Expert Opinion:

The worsening of the situation in China is worrying in my opinion. Another European car manufacturer is warning. I am surprised it took them so long. One factor is that they were expecting that launch of new models in H2 would boost sales which isn’t the case. Despite the facially low valuation (which will get higher with massively cut numbers), momentum is set to remain adverse. This is a no-go sector for me. Any company with a massive exposure to Chinese consumption should be monitored carefully.  

Yesterday, Skechers shares tumbled c10% after its CFO warned that China sales will be under pressure the rest of the year. This is obviously a negative X read for the likes of Adidas or Puma but also luxury stocks.