LVMH (LVMH.PA) shares plunged to their lowest since December on Wednesday after announcing a slower third-quarter sales growth.
This indicates that inflation and economic instability are hampering the post-pandemic buying rush.
Luxury firms’ stock values are under strain due to China’s economic slowdown and the uncertainty stemming from climbing interest rates in Europe and the US.
In September, LVMH was surpassed as Europe’s most valuable publicly traded company. Its shares fell by about 6% in early market movements, marking the steepest decline since March 2020.
Competing brands such as Kering (PRTP.PA), Hermes (HRMS.PA), Swatch (UHR.S), Richemont (CFR.S), and Burberry (BRBY.L) also experienced losses.
LVMH, the parent company of brands like Louis Vuitton, Dior, and Tiffany, recently revealed a lower-than-anticipated 9% surge in Q3 revenue.
This is a significant deviation for the leading luxury company, which had consistently surpassed forecasts with solid double-digit growth previously.
The luxury giant is grappling with diminishing demand for premium products in the US and Europe, attributed to surging prices leading consumers, notably the younger generation, to limit post-pandemic spending. Additionally, the economic rebound in China remains inconsistent.
JP Morgan’s research note stated that although LVMH is positioned to weather current market fluctuations, the gloomy earnings trajectory and ambiguous future predictions limit its immediate valuation prospects.
LVMH’s deceleration in Europe from a 19% sales growth in Q2 to 7% in Q3 will likely affect the broader luxury sector, according to JP Morgan.
Stock values for Gucci’s parent company, Kering, dropped by roughly 2.5%, while Hermes’ fell by about 2.4%.
Berenberg analysts labeled the situation as “An end to the roaring 20s,” subsequently lowering their price target for LVMH due to anticipated subdued H2 performance and projected standard growth rates in subsequent years.
The luxury sector’s prospects, especially in light of China’s underwhelming recovery – a significant catalyst for luxury sales – are being questioned by investors.
Since March’s end, approximately $175 billion has been erased from the market valuation of ten leading European luxury brands, amidst China’s shaky recovery, inflation, and surging interest rates causing American consumers to limit spending.
RBC analyst Piral Dadhania stated that the forecast for the upcoming year remains unclear, predicting that the luxury sector will likely see more downward earnings adjustments.