European luxury stocks moved lower on Tuesday after LVMH (EU:MC) reported a sharper-than-expected decline in sales at its fashion and leather goods division, raising concerns about the pace of recovery in the luxury goods sector, particularly in China.
By 09:09 GMT, LVMH shares had fallen 1.6%, while Hermès (EU:RMS) declined 2.4% and Kering (EU:KER) lost 2%. Moncler (BIT:MONC) dropped 1.5%, Dior (EU:CDI) retreated 1.4% and Richemont (TG:RITN) weakened 1.1%.
The broad decline followed LVMH’s third-quarter trading update, which highlighted continued pressure on demand for Louis Vuitton products in China and slower growth in its watches and jewellery business.
LVMH Fashion Division Records Larger-Than-Expected Sales Decline
LVMH reported a 5% organic decline in sales at its fashion and leather goods division, compared with the 1.8% contraction expected by analysts surveyed by Visible Alpha.
The division, which accounts for nearly half of the group’s revenue, includes Louis Vuitton and other major luxury fashion brands.
The company attributed part of the weakness to a “less favourable trading environment” in China, where demand for high-end products has remained subdued.
Group organic revenue increased 1% in the third quarter to €18.5 billion ($20.68 billion), excluding currency movements. The result was below market expectations for growth of 1.3%.
For the first nine months of the year, LVMH generated revenue of €57.1 billion, representing a reported decline of 2% but organic growth of 2%.
The difference between reported and organic performance reflected the impact of currency movements and other adjustments included in the company’s organic growth measure.
The weaker fashion performance renewed concerns about the ability of European luxury companies to restore growth following an extended period of slower consumer spending.
Louis Vuitton Recovery Expected to Take Time
LVMH’s management indicated that an improvement in demand for Louis Vuitton products may be gradual rather than immediate.
Asked about the brand’s recovery prospects, Chief Financial Officer Cécile Cabanis said: “Recovery takes time, and I do not believe there are many shortcuts.”
Her comments suggested that the company does not expect a rapid improvement in trading conditions.
The outlook for Louis Vuitton is particularly important because the brand is a major contributor to LVMH’s fashion and leather goods division.
Weakness in Chinese consumer spending has remained a significant challenge for luxury manufacturers, with the country’s demand influencing the performance of leading European brands.
The latest figures indicated that the sector’s recovery remains uneven, despite stronger results in some other business categories.
Watches and Jewellery Growth Slows
LVMH’s watches and jewellery division, which includes Bulgari and Tiffany, also recorded slower growth during the third quarter.
Organic sales increased 6%, compared with growth of 9% during the first half of the year.
The moderation was notable because watches and jewellery had been among the stronger categories within the luxury market.
Although the division continued to expand, the slowdown suggested that demand conditions were becoming less supportive across additional product segments.
The result added to concerns about the durability of the broader luxury sector’s recovery.
Sephora Leads Growth Across LVMH Divisions
Despite weakness in fashion and slower growth in jewellery, several LVMH businesses reported positive trading performances.
Selective retailing was the group’s strongest division, generating organic revenue growth of 8%.
Beauty retailer Sephora continued gaining market share in several countries, supported by exclusive product introductions, including launches associated with Rhode.
The business also expanded its international presence by entering Belgium and Croatia.
LVMH’s wines and spirits division recorded organic growth of 6%, benefiting from an ongoing recovery in champagne sales, particularly in Europe.
Hennessy cognac also delivered positive momentum in Asian markets.
Meanwhile, perfumes and cosmetics revenue increased 1%, supported by new product introductions, including Dior’s J’adore Intense and Sauvage Extrait fragrances.
The differing performances across divisions highlighted the uneven nature of consumer demand within the luxury industry.
Luxury Sector Faces Continued Valuation Pressure
European luxury companies have experienced a prolonged slowdown over the past three years, with weaker demand and uncertainty surrounding Chinese consumer spending weighing on investor sentiment.
The sector’s leading groups have collectively lost approximately €330 billion in market value since the beginning of the year.
LVMH alone has recorded a decline of roughly 40% over that period.
The scale of the losses reflects concerns about the sector’s earnings outlook and the pace at which demand for high-end fashion and accessories may recover.
Tuesday’s share price declines demonstrated how disappointing results from a major industry participant can affect valuations across the wider luxury market.
Investors will continue monitoring Chinese consumer demand, brand-level sales trends and the performance of other European luxury companies for evidence of a more sustained recovery.
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