Luxury Shares Dive on LVMH Sales Miss, Overall Sector Slowdown
LONDON — “Normalization,” a usually harmless term, has struck fear into investors’ hearts and sent European luxury shares tumbling Wednesday.
Shares in LVMH Moët Hennessy Louis Vuitton fell to their lowest level this year after the group missed consensus estimates by up to 6 percent when it reported third-quarter revenues on Tuesday.
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The fall, and the market’s anticipation of an upcoming “normalization” in luxury revenue growth, also weighed on shares at Richemont, Hermès, Kering and Burberry.
At the close of trading on Wednesday, LVMH was down 5.7 percent to 692 euros; Richemont, 4 percent to 109.40 Swiss francs; Kering, 1.3 percent to 428.50 euros, and Hermès, 1 percent to 17.58 euros. Burberry shares were down 3.2 percent to 17.77 pounds.
The LVMH miss was just the latest indication of the direction that the luxury goods business could take in the next months.
Last week, RBC Capital Markets had already sounded a warning about the fate of luxury goods, and said that Richemont, which specializes in fine jewelry, could be the hardest hit of all the major groups.
RBC downgraded Richemont’s share price target to 130 Swiss francs from 170 Swiss francs for the next 12 months based on new, and lower, earnings estimates.
The bank declared that the “the luxury cycle is turning,” and argued that the macro headwinds that luxury is facing, such as higher inflation, interest rates, and a waning consumer appetite, are “the worst in decades.”
As reported, LVMH said revenues rose 1 percent in the third quarter, reflecting a normalization of growth rates in its key fashion and leather goods division as inflation and high interest rates weigh on discretionary spending.
Group revenues in the three months to Sept. 30 totaled 19.96 billion euros, below a Bloomberg consensus estimate of 21.15 billion euros.
Chief financial officer Jean-Jacques Guiony said it was difficult to make projections for the fourth quarter and beyond based on the latest performance figures.
“Time will tell, depending on the depth and the length of the cycle, whether it was a real cycle in consumption or merely a sort of blip after three extraordinary years,” he said on a webcast with press and analysts.
In response, Barclays cut its estimates for the luxury giant, the parent of brands including Louis Vuitton, Dior, Tiffany & Co., and Sephora.
Barclays trimmed its full-year 2023 sales forecast by 1 percent and lowered its price target to 820 euros from 835 euros. The bank said that LVMH’s third-quarter sales update “now appears as negative … for the rest of the sector. Overall more subdued growth is also likely to be felt by peers.”
On Wednesday, Bernstein added to the downbeat chorus, saying it’s likely that luxury stocks will continue “trading sideways” until a positive catalyst such as a China stimulus “or the acceleration of the reverse repatriation trend is confirmed.”
It added that regardless of the current scenario, LVMH remains Bernstein’s top pick “and the current pullback offers an attractive buying opportunity for long-term investors.”
Earlier this week, HSBC said in a report that sales momentum in luxury is likely to slow in the third quarter.
The bank said that growth from European and Japanese clients is “normalizing; mainland China is facing a tougher basis of comparison and unsupportive macro data points, and the U.S. is still not improving” despite easier comparisons with last year.
“We expect a broad-based normalization of growth across all geographies,” said the bank. As a result of the macro pressures, HSBC said it now expects Kering’s luxury division to be down 8 percent in the third quarter. The company is set to report those results on Oct. 24.
The luxury slowdown should not have come as any surprise to investors.
Last April, Mytheresa, the publicly quoted retailer that stocks major luxury brands, issued a sales and profit warning for fiscal 2023.
Mytheresa said that a toxic brew of rising interest rates, stubborn inflation and heightened promotional activity by its peers would dampen growth of the top and bottom line for fiscal 2023, which ended over the summer.
Last month, in its year-end earnings report, Mytheresa said that big-spending consumers helped prop up the top and bottom lines in fiscal 2023 in what remains a brutal market for luxury fashion that won’t start improving until well into 2024.
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