PARIS — Luxury stocks took a hit on Wednesday after sector bellwether LVMH Moët Hennessy Louis Vuitton delivered second-quarter results in line with expectations and confirmed signs of weakening U.S. demand.
The world’s largest luxury group, which routinely beats analysts’ forecasts, said its key fashion and leather good division saw organic sales rise 21 percent in the three months to June 30, a quarterly acceleration in line with analysts’ forecasts. Though Chinese demand recovered as the country reopened in the wake of pandemic shutdowns, U.S. growth slowed, it reported.
Shares in LVMH closed down 5.1 percent, while rival Kering declined 1.8 percent and Hermès International lost 2.3 percent on the Paris Stock Exchange. Compagnie Financière Richemont shares fell 1.5 percent to 136.30 Swiss francs on the Swiss Stock Exchange.
Luca Solca, analyst at Bernstein, said the LVMH figures suggested the sector is entering a period of slightly lower growth.
“Management is satisfied with the results even though they did not beat consensus. This hints at the start of an ‘investment style transition’ for the luxury goods sector, from chasing momentum and positive surprises, to ‘steady state,’ as consumer demand starts to normalize,” he said in a research note.
LVMH said sales in the U.S. were down 1 percent in the second quarter, following an 8 percent increase in the first three months of the year. By contrast, sales in Asia, excluding Japan, were up 34 percent in the second quarter, after a 14 percent rise in the first quarter.
Sales of fashion and leather goods to Chinese consumers were up between 40 percent and 45 percent in the first half of 2023 compared with the same period in 2021, said LVMH chief financial officer Jean-Jacques Guiony, explaining that he did not consider 2022 a reliable basis for comparison because of the widespread disruption caused by COVID-19 lockdowns.
Margins for the division were hit by a rise in spending on advertising and promotions, with marquee events such as Pharrell Williams’ debut show for Louis Vuitton, as well as currency weakness in Japan and China. While the group’s operating profit fell short of consensus expectations, analysts still saw upside for the stock.
“LVMH remains the best-in-class compounder with balanced risk/reward exposure to luxury and premium staples, in our view,” said Piral Dadhania, analyst at RBC Capital Markets.
“Its brand portfolio is arguably the best in the sector, and it benefits from scale advantages (marketing, retail, sourcing, talent development), a strong digital platform, and generates consistent and meaningful free cashflow, supporting its acquisition strategy,” he added.
While revenues for the fashion and leather goods division should normalize, those more exposed to travel retail and wholesale distribution — such as perfumes and cosmetics, and selective retailing — should continue to recover, he predicted. “We expect LVMH to maintain its elevated margin and ROIC [return on invested capital] profile in 2023,” Dadhania said.
Kering is due to unveil its second-quarter results on Thursday, and Hermès on Friday.