If Louis Vuitton Moet Hennessy (EPA:MC) is the yardstick for global luxury spending trends, then there is cause for concern leading up to Europe’s second-largest company’s full-year earnings.
Warning signals were already flashing for the luxury sector – an admittedly nebulous term comprising high-end clothing, jewellery, watches, spirits and other discretionary items – when China’s post-Covid market recovery drastically undershot expectations.
Combined with tepid US demand, and analysts’ outlooks are mixed at best.
Newly published research from Kepler Cheuvreux warned that LVMH’s sluggish top-line growth, coupled with a reversal of most of the recent margin tailwinds, “points to muted earnings growth in 2024 and mid-single-digit downside to consensus”.
Kepler’s outlook for the luxury sector is hardly any better: “Considering the deteriorating macroeconomic environment, the tough comparison basis and lower luxury spending from Western shoppers, the normalisation of growth with tourists (low likelihood that Chinese tour groups will come back in 2024), and sluggish recovery in China, we anticipate a sharp deceleration in growth in 2024.”
Despite these bearish forecasts, green shoots did emerge for Chinese luxury demand in Cartier-owner Richemont’s latest trading update.
Chinese demand swooped to the rescue in Richemont last quarter, with a 25% increase in sales across the mainland, Macau and Hong Kong in a quarterly trading update on Thursday.
However, this seemed to be an outlier, with Morgan Stanley (NYSE:MS) analysts reiterating that “China's cooling economy and ongoing property crisis have been a worry for the (luxury) sector which has relied on the country for growth in recent years and had hoped for a strong rebound from strict COVID lockdowns there”.
British luxury play Burberry Group PLC (LSE:BRBY)’s profit warning earlier this month did nothing to bolster sentiment among sector analysts.
As for LVMH, even though its share price valuation “is reasonable”, Kepler analysts decided to downgrade the stock from buy to hold.
"We believe 2024 will mark the end of the post-pandemic super cycle in the luxury goods industry,” they said. “Although LVMH owns the most desirable brands in the sector and its management is best-in-class on execution, it will not be immune to the overall slowdown expected this year.”
Results are due on Thursday, 25 January.