- Angela Gonzalez-Rodriguez |
New York.- The world’s largest luxury goods group, LVMH, reported a 10 percent increase in revenues for its third quarter. Despite the positive update, the French group’s stock dipped. Why? FashionUnited explores some of the reasons dragging European luxury retailer’s shares these days.
LVMH announced last week its
"The key debate was not going to be around third quarter sales growth, but rather around the exit rate from the third quarter, the confidence on the fourth quarter and the 2019 outlook," said Deutsche Bank in a market analysis report.
Morgan Stanley cuts outlook on luxury goods sector
Many stocks were negatively impacted by Morgan Stanley’s downgraded rating on the luxury goods sector. On October 10, shares of luxury firms closed at the bottom of the Stoxx 600 Wednesday. LVMH ended down by 7.14 percent after reporting a slowdown in sales, causing a halo effect on other luxury peers such as Moncler (-10.85 percent) and Kering (down by 9.62 percent.)
Analysts at the investment bank now have an “underweight” recommendation on the sector, what is adding to pressure on industry stocks. The private bank cut its EU luxury goods sector rating to "underweight," warning in a note to investors that “A material slowdown in China presents the biggest risk to the sector” and highlighting “stretched” valuations in the luxury industry.
In this regard, it’s worth remembering that many luxury goods companies are still trading above their average valuations of the last 12 months, after a rally fuelled by rebounding sales in the past two years, reported Bloomberg citing market data and its own analysis.
That has made the stocks increasingly vulnerable to a sell-off as the United States and China trade barbs over potential hikes in import tariffs. “LVMH and Kering have had fantastic numbers in the past years - even if today’s numbers are still good, the market was hoping that the past outstanding growth trend would extend a few years longer,” said Pierre Willot, fund manager at Paris-based Montaigne Capital, reported the ‘Wall Street Journal’.
LVMH feels the impact of airport concession closures in Hong Kong
Amongst the reasons presented by the own French company for the growth slowdown hinted in its books was the impact of the airport concession closures in Hong Kong at the end of 2017. On this note, market sources highlight that Chinese consumers account for over 30 percent of all luxury goods purchases worldwide. Falls in the yuan have also added to market concerns that Chinese shoppers will lose purchasing power.
Additionally, investor sentiment has taken a hit over the past week after an IMF report lowered its global gross domestic product forecast for both this year and next, recalled the CNBC. In the United States, fears that the Federal Reserve is ready to push the cost of borrowing higher has also had a knock-on effect to global markets, added the U.S. news channel.
As a result, the main benchmark indexes worldwide have been trading lower these days, led by the British FTSE 100 and Germany and France's main market compounded indexes.
Executives at LVMH didn’t however comment on current trading trends, or on the potential effects of the trade war between China and the U.S. "There is nothing particularly specific to luxury and LVMH in all that," Jean-Jacques Guiony, LVMH's financial director, said a in a conference where they reviewed the quarterly results. He further added: "The world is a complicated place, currencies are playing in all directions and governments are making their lives and our life more difficult sometimes."
Photo:“Volez, Voguez, Voyagez – Louis Vuitton” at the American Stock Exchange Building in New York City, Louis Vuitton Official Web