TOP PICKS: We continue to favour Hugo Boss and Essilor and remain cautious on luxury

We maintain Hugo Boss (Buy – FV: EUR128)... The stock has posted a resilient performance (-2.8% in Q3 vs. -3% on average for peers), which is justified in our view given the acceleration in top line growth in Europe in Q2 (61% of sales, +7% FX-n vs. +3%) and an improving trend in the EBIT margin (-20bps in Q2 vs. -170bps in Q1), enabling the group to reiterate its FY15 targets. Furthermore, the Investor Day on 24 November will unveil more details on the digital and OMNI-channel strategies which are part of the 2020 Strategic Plan. Despite this growth strategy (womenswear, retail, etc.), the group also offers one of the highest shareholder returns (60-80% payout ratio policy).

… and Essilor (Buy – FV: EUR126). In our view the Essilor share price level also offers an attractive entry point considering: (i) the favourable geographical exposure with dynamic trends in Europe/US as well as in emerging markets (i.e. H1 FX-n growths: +11% in China and +9% in Brazil) and the pace should not slow during Q3, (ii) Essilor’s ability to accelerate its LFL growth thanks to expansion into fast-growing categories (mid-range, sunglasses, online) and (iii) the “qualitative” growth which impacts positively the profitability over the 2014-17 period (EBIT CAGR: +14.2%e / EPS CAGR: +15.7%e). We expect FY15 guidance to met, illustrating these ST/MT structural drivers.

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