By Mimosa Spencer
PARIS (Reuters) – Investors are bracing for a sharp slowdown in luxury goods sales as luxury companies release first-quarter results, reflecting weak Chinese demand and comparisons with last year, when curbs were lifted Covid in mainland China had increased sales.
LVMH, the world’s largest luxury group, is first to publish on April 16, followed by rivals Dry (EPA:), Prada (OTC:) and Hermes a week later. Burberry and Richemont follow in May.
A surprise warning from Kering last month that first-quarter sales would fall 10% rather than the 3% analysts had expected has already cast a cloud over reporting season.
The group blamed the slump in sales in Asia on its flagship brand Gucci. But its poor performance has raised fears that other high-end fashion brands may also be struggling in China.
“We have a lasting crisis and we don’t know where things will go,” said Olivier Abtan, a consultant at AlixPartners.
“All engines of growth were turned off for several quarters,” he said, describing the crisis as unprecedented.
Chinese tourists in Hong Kong, Macau and Singapore also do not appear to be “gentle spenders”, according to analysts at HSBC.
Kering’s problems in China are partly why its valuation is lower than that of rivals. According to LSEG data, its current 12-month trailing P/E ratio stands at 16, compared to 24 for LVMH and 51 for Hermes.
Kering shares have lost 15% since his warning, with LVMH down 7%. Hermes, seen as less vulnerable than rivals thanks to its richer customer base, lost 2%.
Uncertainty looms over how much shoppers’ appetite for high-end fashion will recover in the near term, even once comparative numbers become less challenging. According to analysts at Barclays, annual growth in global luxury sales will slow to mid-single-digit percentages from nearly 9% last year and double-digit growth in the previous two years.
Faced with rising costs of living, shoppers have become more selective about high-end products, widening the gap between stronger brands, including top labels like Louis Vuitton, Chanel and Hermes, and brands like Burberry , which is under review.
“Some brands will benefit more than others – we have started to see this very clearly over the last couple of years,” said Caroline Reyl, head of premium brands at Pictet Asset Management.
Sales growth is expected to slow even for the fastest-growing companies, such as Prada, whose Miu Miu brand has become a hit among young Chinese shoppers. Jefferies expects Prada’s first-quarter retail sales globally to grow 9.3%.
JPMorgan expects LVMH to post stable overall sales in the first quarter, with 2% growth in its fashion and leather goods division, home to Louis Vuitton and Dior. The division, which sells small Lady Dior bags priced at 5,400 euros ($5,860) and large Louis Vuitton Speedy bags at 10,000 euros, grew 9% year-on-year in the previous quarter.
According to data cited by UBS, consensus expectations are for 3% organic sales growth from LVMH for the three months ended in March, 1% growth from Richemont, a 10% decline from part of Burberry and a 13% growth by Hermes.
($1 = 0.9214 euros)