Jose Vargas
French luxury conglomerate LVMH has witnessed its shares plummet to the lowest level since December as the company reported a slowdown in its third-quarter sales growth. This development serves as evidence that inflation and economic instability are impacting the post-pandemic spending spree typically associated with luxury goods.
The broader luxury sector has come under pressure due to various factors, including a slowdown in Chinese economic growth and the uncertainty created by rising interest rates in Europe and the United States. LVMH, which lost its status as Europe’s most valuable listed company in September, experienced a decline of around 6% in its shares in early trading, marking its worst performance since March 2020. Rival companies such as Kering, Hermes, Swatch, Richemont, and Burberry have also seen their shares affected.
LVMH, home to renowned brands like Louis Vuitton, Dior, and Tiffany, reported a smaller-than-expected 9% rise in third-quarter revenue, a rare miss for the world’s largest luxury goods company. Over recent years, LVMH had consistently outperformed expectations with robust double-digit growth.
The company is currently grappling with waning demand for high-end products in the United States and Europe, where increasing prices have led consumers, especially younger generations, to reduce their spending following the pandemic. The recovery in China has been inconsistent, further impacting LVMH’s performance.
While analysts believe that LVMH is relatively well-positioned to navigate the current volatility, the company is currently experiencing negative earnings momentum and an uncertain outlook. This situation is limiting the potential for an immediate re-rating.
The slowdown in sales growth in Europe, where LVMH saw a drop from 19% in the second quarter to 7% in the third quarter, will likely have broader implications for the luxury goods industry.
Shares in Kering, which owns Gucci, and Hermes both experienced declines of around 2.5% and 2.4%, respectively.
As the luxury goods sector contends with a slower-than-expected recovery in China and the impact of inflation and rising interest rates in the United States, investors have been questioning the sector’s appeal. Since the end of March, the combined value of ten of Europe’s leading luxury goods stocks has fallen by $175 billion.
The outlook for the luxury sector in the coming year remains uncertain, with expectations of ongoing downward earnings revisions.
In light of these challenges, the “roaring 20s” may be coming to an end for the luxury goods industry, as Berenberg analysts suggested while lowering their target price for LVMH. The company’s lowered forecasts reflect a softer second-half momentum and normalized growth in the coming years.
Overall, the luxury sector is grappling with a complex economic landscape and shifting consumer behaviors, which are creating headwinds for even the most prominent players in the industry.
