Diageo PLC (LSE:DGE) and Burberry Group PLC (LSE:BRBY) face headwinds ahead, analysts said as they read across from a trading update from luxury giant Louis Vuitton Moet Hennessy (EPA:MC).
As well as making Johnnie Walker and Crown Royal whiskey, Smirnoff and Ciroc vodka, Diageo also has a 34% stake in LVMH’s Wine & Spirits division.
UBS said Diageo is likely to face headwinds in the second half of its financial year, following the weaker-than-expected results from the division, where LVMH reported a 17% fall in Cognac & Spirits revenue, with soft demand in the US and China key contributors, partially offset by a smaller 1% decline in Champagne & Wines.
UBS said the results pose a negative read-across for European spirits companies. Diageo, which derives around 10% of earnings per share from the LVMH division, the bank sees “downside risk H2/FY25 associate income.”
It added that commentary around a weakening US aspirational consumer and limited pricing power is “unhelpful,” though the recent strength in the Euro could provide some FX benefit.
UBS also noted that Spirits are more exposed to societal issues through the aspirational consumer, which has shown signs of further weakening.
Analysts at Santander noted that almost all divisions turned negative, with Fashion Leather Goods declining 5% organically (the analyst consensus was for a slight -0.3% dip); Perfumes & Cosmetics fell 1.0% (consensus was for +2.0%); Watches & Jewelry was the only division not declining but was still flat; while Selective Retail, including Sephora, was down 1% (consensus was +4.2%), with Sephora’s growth threatened by Amazon's online expansion in the US.
"Looking ahead, we see mounting headwinds stemming not only from the potential US tariff," they said, mostly from a deteriorated macro environment and a stronger euro versus the US dollar and Chinese yuan, "which could continue pressuring luxury demand and the bottom line".
Deutsche Bank's view was that the LVMH result "will provide negative readacross for the luxury peers", although less for Richemont as jewellery was better.
"The weakness in Perfumes & Cosmetics and Sephora will have negative readacross for the US peers and beauty manufacturers as well as spirits companies although much of this weakness is well known by this stage."
A slight chink of positivity was seen by Desutche, which said "the lack of a dramatic slowdown in US luxury in March is somewhat reassuring given all of the noise but we suspect this may be yet to be fully reflected in the data given weaker consumer confidence".
Burberry shares fell 4.2% on Tuesday and Diageo 3%, trailing LVMH's 8.3% decline.