PARIS (Reuters) – As luxury companies gear up to report their first-quarter results, investors are preparing for a potential slowdown in sales, largely influenced by subdued demand from China and comparisons with the previous year’s pandemic-related boost in sales.
LVMH, the world’s largest luxury conglomerate, will kick off the reporting season on April 16, followed by competitors Kering (EPA:PRTP), Prada (OTC:PRDSY), and Hermes a week later. Burberry and Richemont are set to report in May.
Kering’s unexpected announcement last month of a projected 10% decline in first-quarter sales, compared to the 3% anticipated by analysts, has already cast a shadow over the upcoming reports. The company attributed this downturn to a sharp decrease in sales in Asia, particularly from its flagship brand Gucci. Concerns have arisen regarding the performance of other luxury fashion labels in China.
Olivier Abtan, a consultant with AlixPartners, commented on the situation, stating, “We’re facing a prolonged crisis, and the outlook remains uncertain. All growth indicators have been stagnant for several quarters, marking an unprecedented slump.”
Chinese tourists in destinations like Hong Kong, Macau, and Singapore also appear to be less inclined towards luxury spending, according to analysts at HSBC.
Kering’s challenges in China have contributed to its lower valuation compared to its peers. Presently, its 12-month forward price-to-earnings ratio stands at 16, whereas LVMH’s is 24, and Hermes’s is 51, according to LSEG data.
Since Kering’s warning, its shares have declined by 15%, with LVMH experiencing a 7% decrease. Hermes, considered less susceptible due to its affluent clientele, has seen a 2% drop.
There is uncertainty regarding the extent to which consumer demand for luxury goods will rebound in the near future, even as year-on-year comparisons become less challenging. Analysts at Barclays project that global luxury sales growth will decelerate to mid-single-digit percentages, down from nearly 9% last year and double-digit growth in previous years.
In the face of increasing living costs, consumers have become more discerning about luxury purchases, leading to a widening gap between top performers like Louis Vuitton, Chanel, and Hermes, and brands like Burberry, which are undergoing restructuring.
Caroline Reyl, head of premium brands at Pictet Asset Management, remarked, “Some brands will benefit more than others – we’ve seen this trend become increasingly clear over the past two years.”
Sales growth is anticipated to slow even for companies experiencing faster growth rates, such as Prada, whose Miu Miu label has gained popularity among younger Chinese consumers. Jefferies forecasts a 9.3% increase in Prada’s global retail sales for the first quarter.
JPMorgan predicts that LVMH will report flat overall sales for the first quarter, with 2% growth in its fashion and leather goods division, which includes Louis Vuitton and Dior. This division, known for its high-end handbags, experienced a 9% year-on-year growth in the previous quarter.
Consensus expectations point to a 3% organic sales growth for LVMH in the first quarter, 1% growth for Richemont, a 10% decline for Burberry, and 13% growth for Hermes, according to figures cited by UBS.
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