By Luxury stocks slid Wednesday after LVMH’s tough earnings report and a warning from Wall Street about the struggle to revive demand among the all-important Chinese consumers.
Its shares fell 3.7% Wednesday, while L’Oréal dipped 2.2%, and Hermès dropped 1.3%.
LVMH reported a sales dip and delivered commentary on weak demand in China, a dire sign for the luxury sector, which has relied heavily on consumers in the world’s second-largest economy to drive growth.
In its earnings release Tuesday, LVMH reported a sales decline of 3% year over year in the third quarter.
The French luxury conglomerate’s fashion and leather products fell 5%, marking their weakest results since the second quarter of 2020. That group of products includes the famed brands Louis Vuitton and Christian Dior.
The company pointed to overwhelmingly weak demand in China, with organic sales in Asia (excluding Japan) falling 16%.
“Most of our markets currently face economic challenges including mainland China,” LVMH’s chief financial officer, Jean-Jacques Guiony, said during an earnings call, adding: “Consumer confidence in mainland China today is back in line with the all-time low reached during COVID.”
He said, though, that the strength of Chinese demand in the first half of 2024 could show a persistent appetite for luxury despite the recent slowdown.
Yet it seems there’s no end in sight for the downturn. The company gave vague forward guidance, and analysts on Wall Street said the country’s recent stimulus wouldn’t be enough to reverse the weak demand.
There’s “no improvement of luxury consumption after the recent macro policy pivot,” analysts from Citigroup said in a note, which gathered observations from a Chinese luxury mall during the country’s Golden Week holiday earlier this month.
China’s latest stimulus package, unveiled late last month, has aimed to prop up the country’s weak consumer demand and struggling property sector. At first, it fueled a rally among luxury stocks including Hermès and LVMH, which both soared over 15% in the week the stimulus was announced.
The rally was a welcome sign for the sector after it faced months of slow demand as China’s consumers proved reluctant to spend, but the industry’s current slide points to more pessimism.
For his part, Guiony said he didn’t have any idea whether the stimulus measures would succeed in boosting consumer spending. When asked about his outlook for the company, he remained similarly vague.
“I’ve no idea,” he said, adding: “The visibility of our business is as good as yesterday’s sales. We’ve been through ups and downs. The only thing we know, when the business is bad, usually it’s good thereafter. It’s a cyclical business.”
