Despite record figures, the luxury goods groups – from LVMH to Hermès and L’Oréal to Kering – have slacked off in the stock market in recent weeks. What were the reasons for the unexpected burglary?
The resilience of luxury goods groups to crises seemed indestructible. No pandemic, runaway inflation or a war on Europe’s external borders could slow the growth of the luxury industry. The numbers were excellent. Luxury giant LVMH announced in April that first-quarter sales rose 17 percent year-on-year to €21 billion. The group thus exceeded the analysts’ forecasts by a good six percent.
2022 was already an absolute record year for LVMH. For the first time in the history of the brand, Louis Vuitton was able to break the 20 billion euro mark and the turnover of the entire group amounted to almost 80 billion euros. That corresponded to a profit of 14 billion euros. But the luxury goods giant was not the only group to achieve absolute top values. Year-on-year, L’Oréal and Hermès also announced they were up 30 percent and 85 percent, respectively.
Hermès and LVMH lose on the stock market
The luxury goods industry is extremely resilient. This is probably because prices can be raised at will, regardless of economic, geopolitical and monetary uncertainties, without batting an eyelid from the affluent and international clientele. But these double-digit growth rates with constant interest rates in all geographic areas do not particularly impress Deutsche Bank.
“It’s time to be more selective,” was the title of a Deutsche Bank statement a few weeks ago. The announcement obviously did not fail to have an effect on investors. On the Paris stock exchange, Hermès immediately fell by 5.4 percent, which meant the largest drop in the French stock exchange index CAC 40. Shares of LVMH and Kering fell 4.2 percent and 2.6 percent, respectively. In one day, shares in the luxury goods sector lost the equivalent of 30 billion US dollars.
What fears did the institute express? First, there is the slowdown in growth in the US. “Given signs of weakening demand from the most demanding consumers, growth in the US becomes increasingly worrying,” Deutsche Bank said in a statement. Translated, this means that young consumers are now turning to less expensive and less institutional brands.
The negative response to the US debt ceiling negotiations and fears about future economic momentum, while not mentioned in the report, must inevitably be counted among the sources of restraint. The bank also points to the fact that the industry is trading at a particularly steep premium compared to other European stocks. “Given this valuation premium, we are more cautious and believe investors will be more selective in the second quarter,” the bank said.
Stocks of Richemont and Swatch recommended for purchase
This succinct judgment does not apply to the entire luxury goods industry. The Swiss group Richemont – to which the star brands Cartier and Van Cleef & Arpels belong – is spared by the analysts. Richemont has less exposure to the US but still has an attractive valuation. Above all, the group has a price discount of more than ten percent compared to its competitors. In contrast to the competition, all of which fell in price on the Paris Stock Exchange, the Richemont Group held its ground on the Zurich Stock Exchange with a plus of 0.7 percent. Deutsche Bank also recommends buying the Swiss group Swatch. Moncler shares are also recommended due to the brand’s ability to cater to Chinese demand
Nevertheless, there is no reason to panic. The warning to moderation is far from destroying the industry’s excellent basic data. While Deutsche Bank does not currently recommend buying shares in LVMH or Hermès, it does point out that both groups “offer a defensive position in the luxury sector thanks to their diversification and affluent clientele respectively.”
This article was published on FashionUnited.fr. Translation and editing: Barbara Russ