Investment analysts at UBS have warned that weakening sales growth at LVMH is posing a risk to margins and causing a delay to a potential recovery phase for the global luxury bellwether.
UBS analyst Zuzanna Pusz expects to see decelerating organic sales growth (OSG) in the third quarter, despite an easier comparable basis.
Weakening sales trends are expected across most divisions, with all eyes on the performance of Dior following recent controversies relating to exploitation in its supply chain.
UBS has reduced its earnings per share (EPS) forecast by 3% to 8% for fiscal years 2024 to 2026, citing softening demand in the luxury sector and a more cautious outlook following a field trip to Asia.
The bank now expects LVMH’s third quarter sales (due in mid-October) to reach €19.6 billion, representing a year-on-year decline of 2%.
“We continue to see LVMH as one of the best companies in the sector in the long term; however, in the short term, we see increased downside risk to earnings amid softening organic sales growth with little room to support its margins,” said Pusz.
There is therefore “no recovery in sight” for France’s most valuable company.
Key areas of focus for the quarter include Chinese consumer trends, which have driven the bulk of recent sales growth, and the potential for a recovery in the American and European markets.
UBS has revised its price target for LVMH to €660, a 10% reduction. Shares were trading at €617.20 in early Wednesday exchanges.