Luxury shares in Europe fell sharply on Wednesday, causing concern among investors and leading to a decline in stock prices for several major luxury brands. LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury goods group, reported third-quarter revenues that missed consensus estimates by up to 6 percent. As a result, shares in LVMH fell to their lowest level this year. The market’s anticipation of an upcoming “normalization” in luxury revenue growth also impacted shares at other luxury brands, including Richemont, Hermès, Kering, and Burberry.
This recent decline in luxury shares is seen as an indication of the potential direction the luxury goods business could take in the coming months. RBC Capital Markets had previously warned about the fate of luxury goods and downgraded Richemont’s share price target based on new, lower earnings estimates. The bank stated that the luxury cycle is turning and that luxury brands are facing macro headwinds such as higher inflation, interest rates, and a waning consumer appetite, which are described as the worst in decades.
LVMH’s third-quarter performance reflects a normalization of growth rates in its key fashion and leather goods division, as discretionary spending is affected by inflation and high interest rates. The group reported a 1 percent rise in revenues for the third quarter, totaling 19.96 billion euros, which fell below the Bloomberg consensus estimate of 21.15 billion euros. Chief Financial Officer Jean-Jacques Guiony expressed uncertainty about making projections for the fourth quarter and beyond, given the current performance figures.
In response to LVMH’s performance, Barclays cut its estimates for the luxury giant and lowered its price target. The bank stated that LVMH’s sales update has a negative impact on the rest of the sector, and overall, more subdued growth is likely to be felt by peers. HSBC also predicted a slowdown in luxury sales momentum for the third quarter, attributing it to factors such as normalizing growth across all geographies and unsupportive macro data points.
Despite the negative outlook for the luxury sector, Bernstein maintains LVMH as its top pick and sees the current pullback in stock prices as an attractive buying opportunity for long-term investors. Mytheresa, a publicly quoted luxury retailer, had previously issued a sales and profit warning for fiscal 2023, citing rising interest rates, stubborn inflation, and increased promotional activity by competitors as factors that would affect growth. However, in its year-end earnings report, Mytheresa stated that big-spending consumers helped support the company’s financial performance in fiscal 2023, but the luxury fashion market is not expected to improve until well into 2024.
As the luxury goods sector faces challenges related to macroeconomic conditions and changing consumer behavior, investors and industry experts remain cautious about the future. The impact of inflation, interest rates, and a shift in consumer preferences will likely continue to affect luxury brands in the coming months.
More detail via WWD here… ( Image via WWD )