Luxury news

A €233 billion sell-off signals less sparkly future for luxury stocks

LVMH’s sales figures accelerated a sell-off that has wiped €233 billion from the market value of Europe’s seven largest luxury companies since April

The Louis Vuitton, left, and Dior luxury clothing boutiques, operated by LVMH on the Champs-Elysees in central Paris, France, on Tuesday, April 11, 2023. Investors are paying attention to recovery trends in China and the US

The wealthy shoppers who fuelled LVMH’s rise to Europe’s most valuable company and made its founder the world’s richest man are showing signs of fatigue.

Disappointing sales figures from the owner of Louis Vuitton and Christian Dior sent a shudder through a luxury industry that had grown accustomed to stellar growth at the world’s biggest purveyor of high-end consumer goods.

LVMH suffered its biggest intra-day share decline in almost two years on Wednesday, falling as much as 8.5 per cent and briefly wiping out its once-hefty gains for the year. Smaller rivals such as Richemont, Gucci owner Kering and Hermes International were dragged down with it.

Signs of a softening performance for luxury goods aren’t new. The industry had already lost lustre as China’s recovery sputtered and demand from US consumers cooled. Yet LVMH’s good-but-not-great sales figures accelerated a sell-off that has wiped some $245 billion (€233 billion) from the market value of Europe’s seven largest luxury companies since April.

A Yayoi Kusama simulation robot and "dancing pumpkin" are displayed at the Louis Vuitton luxury flagship store in Shanghai, China, May 17, 2023

“I used to say that I liked LVMH because they typically do better than expected, but it’s the first time in a while that they disappointed,” said senior portfolio manager Bruno Vacossin at Palatine Asset Management. “Overall, this shows that the sector is not immune to a slowdown.”

LVMH ceded its position as Europe’s most valuable company to Danish drug-maker Novo Nordisk last month, and its founder and chief executive officer, Bernard Arnault, earlier this year fell to second place on the Bloomberg Billionaires Index behind Elon Musk.

Organic revenue at LVMH’s biggest unit, fashion and leather goods, rose 9 per cent in the third quarter. While hardly a collapse in demand, the growth was below analysts’ estimates and half the pace of the first six months.

The results poured cold water on any hopes for a strong demand recovery, notably in China, and showed that weakness had spread. Revenue growth in Asia excluding Japan slowed to 11 per cent from 34 per cent in the previous quarter. Europe’s growth more than halved.

Sales at the wines and spirits unit tumbled 14 per cent, well below expectations, briefly sending shares of Cognac-maker Remy Cointreau spiralling down. LVMH owns Champagne labels such as Dom Perignon and Hennessy Cognac, which has seen US demand slide amid a pushback against price hikes there.

“After three roaring years and outstanding years, growth is converging toward numbers that are more in line with the historical average,” LVMH Chief Financial Officer Jean-Jacques Guiony said during the quarterly presentation.

Guiony also warned investors not to expect that its second-biggest fashion brand, Christian Dior, will continue to see the 30 per cent annual growth rates of the past few years.

Hermes has historically been resilient to economic turbulence because demand for its Birkin and Kelly bags outstrips supply

LVMH now trades at a discount to the tech-heavy Nasdaq 100 Index in the US, after trading at a premium to technology companies for most of the last decade — calling into question the premise that high-flying luxury stocks were Europe’s answer to the US’s technology dominance.

Hermes and Kering will follow LVMH with sales figures later this month. Hermes has historically been resilient to economic turbulence because demand for its Birkin and Kelly bags outstrips supply, creating a backlog of orders. The stock is still up more than 20 per cent this year.

Kering has been struggling through a transition following recent management changes, and with a new creative director at Gucci — its biggest brand — whose creations won’t hit store shelves until February. That stock is down about 10 per cent this year.