LVMH led a sell-off in global luxury stocks on Wednesday after the industry bellwether reported slower than expected sales from shoppers reining in spending on champagne and handbags.
Shares in the world’s biggest luxury group fell more than 5 per cent to €650 a share, taking its market value to €323 billion and marking a decline this year of 9 per cent.
Other luxury stocks also declined as investors worried about demand from Chinese consumers and the outlook for a sector that is slowing down after several years of record growth.
Hermès and Brunello Cucinelli both fell 2.2 per cent, while Gucci-owner Kering was down 3.7 per cent. Richemont, owner of jeweller Cartier, was down 2.3 per cent, and Prada dropped 5.5 per cent.
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Revenues at LVMH, the world’s biggest luxury company and owner of Louis Vuitton, Dior and Tiffany, grew 1 per cent on an organic basis to €20.98 billion in the three months to June – a slower pace than in the first quarter and below consensus expectations for a 3 per cent rise.
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Sales in Asia excluding Japan, which is dominated by China, fell 14 per cent in the second quarter, exacerbating concerns about luxury demand in the world’s second largest economy – although wealthy Chinese shoppers continue to travel abroad to shop, notably to Japan.
“We face easier comps (comparable store sales) in the second half of the year, which hopefully will result in stronger growth,” said chief financial officer Jean-Jacques Guiony, noting that spending growth by Chinese customers shopping globally, while slightly slower than in the first quarter, was “still holding up quite well”.
“Against this backdrop we remain vigilant, but we also take comfort in the strengths of our brands, our business model, our regional balance and our financial strengths.”
LVMH is viewed as a bellwether for the industry because of its size and the fact that its more than 75 companies span luxury segments from watches and bags to travel. As the industry has slowed over the past year, LVMH has remained in the middle of the pack as companies in difficulty such as Kering and Burberry lag, while high-end brands such as Hermès and Brunello Cucinelli pull ahead, benefiting from their wealthier client bases.
“LVMH [has] slowed down amid luxury demand moderation,” said Luca Solca at Bernstein, noting that the main reasons for the operating profit decline were foreign exchange factors and investment in retail. “This shouldn’t be an insurmountable problem given the minimal size of the miss and the significant pullback the LVMH share price has suffered” since the start of the year, he added.
Sales at the French company’s closely watched fashion and leather goods division, its largest by revenues and profits, slowed to 1 per cent on an organic basis in the second quarter, while operating profits fell 6 per cent.
Group first-half operating profits of €10.7 billion also came in below expectations compiled by analysts at Stifel, with particular pressure on its wines and spirits divisions as well as watches and jewellery.
There was “no miracle with the luxury bellwether [and] the sector is likely to remain out of favour near-term”, wrote Thomas Chauvet at Citi.
Champagne sales fell but remained above 2019 levels, the company said, while weak cognac sales in the subdued Chinese market were in part offset by a return to growth in the US.
Selective retailing, which includes LVMH’s travel retail business as well as beauty chain Sephora, was a bright spot with 5 per cent growth in the second quarter, although that was slower than analysts had predicted.
Several luxury groups that have reported so far this quarter have flagged weak demand in China.
Richemont reported roughly flat sales in its most recent quarter, during which growth in the US and Europe was able to offset a sharp decline in China. Smaller groups Burberry, which is undergoing a fraught turnaround, and Hugo Boss issued profit warnings last week. – Copyright The Financial Times Limited 2024
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