LVMH shares tumbled on Wednesday to their lowest level since December after the French luxury group reported slower third-quarter sales growth, highlighting the impact of inflation and economic turmoil on the post-pandemic spending spree.
Shares in LVMH, which lost its crown as Europe’s most valuable listed company in September, were down by around 6% in early trading, marking their worst day since March 2020. Rival companies like Kering, Hermes, Swatch, Richemont, and Burberry also experienced declines.
LVMH, known for its luxury brands such as Louis Vuitton, Dior, and Tiffany, reported a smaller than expected 9% rise in third-quarter revenue on Tuesday. This was a rare miss for the world’s largest luxury goods company, which had consistently outperformed expectations with strong double-digit growth in recent years.
LVMH is grappling with slowing demand for high-end goods in the United States and Europe, where rising prices have prompted shoppers, particularly younger generations, to curtail their post-pandemic spending. The recovery in China has also been inconsistent.
Despite the challenges, JP Morgan suggests that LVMH may navigate the ongoing volatility relatively well, but with currently negative earnings momentum and an uncertain outlook, they see limited room for absolute re-rating in the short term.
The trend of slowing sales in Europe, where LVMH’s sales growth dropped from 19% in the second quarter to 7% in the third quarter, is expected to impact the broader industry.
Shares in Kering, the owner of Gucci, traded down around 2.5%, while Hermes fell by approximately 2.4%.
Investors have raised questions about the luxury goods sector as the recovery in China, a significant growth driver for luxury fashion sales, has been slower than initially expected. The sector has faced challenges with a total of $175 billion being wiped off the value of 10 leading European luxury goods stocks since the end of March. Factors contributing to this include China’s rocky recovery, slowing growth, high inflation, and rising interest rates affecting U.S. shoppers.
RBC analyst Piral Dadhania believes that the outlook for next year remains uncertain, and he anticipates that downward earnings revisions for the sector will likely continue.