The French luxury giant LVMH announced reduced third-quarter sales growth on Wednesday, showing hints that inflation and economic unrest are slowing a post-pandemic buying frenzy. LVMH’s shares plunged to their lowest level since December.
A slowdown in China and the uncertainty brought on by rising interest rates in Europe and the US have put pressure on shares of luxury brands.
In early trading, shares of LVMH, which lost its title as the most valuable listed business in Europe in September, were down almost 6%, positioning them for their worst day since March 2020.
Competitors Kering, Hermes, Swatch, Richemont, and Burberry also saw their shares drop.
The world’s largest luxury goods company, LVMH, which owns brands like Louis Vuitton, Dior, and Tiffany, reported a smaller-than-expected 9% increase in third-quarter revenue on Tuesday. LVMH has frequently outperformed forecasts with strong double-digit growth in recent years.
While the recovery in China has been patchy, LVMH is dealing with declining demand for high-end items in the United States and Europe, where rising costs have caused consumers, particularly younger generations, to scale back on a post-pandemic shopping binge.
In our opinion, LVMH continues to be one of the stocks that should handle the present volatility relatively better; nonetheless, due to the company’s current negative earnings momentum and unclear outlook, we see little room for an absolute re-rating in the near term.
JP Morgan predicted that the industry as a whole would be impacted by the European market’s declining trend, where LVMH sales growth dropped from 19% in the second quarter to 7% in the third quarter.
Hermes had a 2.4% decline in share price while Gucci’s parent company Kering’s shares fell by 2.5%.
“An end to the roaring 20s,” analysts with Berenberg said as they lowered their LVMH target price.
“Our reduced forecasts reflect weaker H2 momentum and normalized growth in,”
As the rebound in China, a major growth engine for sales of luxury clothing, has been slower than anticipated, investors have begun to doubt the appetite for shares in the luxury goods sector.
Since the end of March, the value of 10 of Europe’s top stocks for luxury goods has fallen by around $175 billion. This is because China’s recovery has been rocky and its development is slowing, while high inflation and rising interest rates are making American consumers tighten their belts.
According to Piral Dadhania, an analyst with RBC, the prognosis for 2019 “remains muddied,” and adverse earnings revisions for the industry are expected to persist.
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