Louis Vuitton Moet Hennessey is at the frontlines of the luxury sector’s battle against declining sales growth and earnings momentum, according to market analysis published on Tuesday.
The luxury goods sector, which has seen robust growth over the past few years, is expected to face a challenging environment in 2024, with UBS predicting a decrease in organic sales growth (OSG) to around 6%, compared to the 10% growth experienced since 2016.
Pulling out a “call for caution” in the year ahead, analysts attributed this slowdown to a combination of factors, including less favourable macroeconomic conditions and reduced pricing power.
Luxury’s overall outlook is marred by various risks, including the potential for a global recession and a normalisation of the post-pandemic luxury demand surge.
For LVMH in particular, UBS forecasts a 5% OSG for its fashion and leather goods division in 2024, a rate that's lower than the sector average, in no small part due to its exposure in the lukewarm Chinese market.
Despite LVMH's defensive growth profile and significant market share gains in recent years, the group is expected to enter a consolidation phase.
As a result, UBS has dropped its buy rating on LVMH stock to neutral with a €770 price target (compared to €829 previously).
Conversely, UBS's top picks in the luxury sector include Hermes International, Hugo Boss, and Richemont.
These choices are driven by their defensive characteristics and the perceived low downside risk in a potential recession scenario.
Taking a broader view, the luxury sector still holds long-term structural attractiveness, thanks to factors like pricing power and healthy balance sheets, but the immediate future suggests a need for caution, with UBS's estimates for sector-wide sales and earnings below consensus for 2024.