When luxury firms release their first quarter results, investors are expecting a sharp decline in luxury sales. This is because of the weak Chinese market and comparisons to the previous year, when mainland China’s removal of COVID restrictions increased sales.
The largest luxury group in the world, LVMH, will report first on April 16. A week later, rivals Kering, Prada, and Hermes will follow suit. Richemont and Burberry come next in May.
Reporting season is already clouded by Kering’s unexpected warning last month that first quarter sales would be down 10% instead of the 3% experts had predicted.
The group attributed the decline in revenues to its flagship brand Gucci in Asia. However, its dismal result raised questions about whether other upscale fashion brands were having trouble in China.
“We’ve got a lasting crisis and we don’t know where things are heading,” said Olivier Abtan, consultant with AlixPartners.
He declared, “All growth engines have been off for number of quarters,” characterizing the downturn as unheard of.
Chinese visitors to Singapore, Hong Kong, and Macau also don’t appear to be the “spending kind,” according to HSBC analysts.
Kering’s valuation is below those of competitors in part because of its issues in China. Based on LSEG statistics, its current 12-month future price-to-earnings ratio of 16 is lower than LVMH’s 24 and Hermes’ 51.
Following its warning, Kering’s stock has dropped 15%, while LVMH has dropped 7%. Hermes is down 2% because its affluent clientele is perceived as making it less vulnerable than competitors.
The extent to which consumers’ desire for luxury clothes will rebound in the near future is unclear, even as the difficulty of comparing numbers declines. Analysts at Barclays predict that annual growth in the worldwide market for luxury goods would drop to the mid-single digits from double digits the previous two years and around 9% last year.
Due to increased living expenses, consumers are becoming pickier about luxury goods, which has led to a difference in quality between better-performing companies like Burberry, which is currently undergoing an overhaul, and top labels like Louis Vuitton, Chanel, and Hermes.
“Some brands will benefit more than others — we have started to see that very clearly in the past two years,” said Caroline Reyl, head of premium brands at Pictet Asset Management.
Even companies with stronger growth rates, like Prada, whose brand Miu Miu has proven popular among younger Chinese consumers, are projected to see a slowdown in sales growth. According to Jefferies, Prada’s first-quarter retail sales will increase 9.3% worldwide.
According to JPMorgan, LVMH’s first-quarter sales would be flat overall, with a 2% increase in its fashion and leather goods segment, which is home to Dior and Louis Vuitton. The division, which retails spacious Louis Vuitton Speedy bags for 10,000 euros and tiny Lady Dior handbags for 5,400 euros ($5,860), had 9% year-over-year growth in the preceding quarter.
According to data published by UBS, there is a consensus expectation for 3% organic sales growth from LVMH for the three months ending in March, 1% growth from Richemont, 10% decline from Burberry, and 13% growth from Hermes.
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