RBC cuts LVMH view as luxury demand weakness weighs on growth

RBC Capital Markets has revised its outlook on luxury giant LVMH Moet Hennessy Louis Vuitton, reducing its rating from "outperform" to "sector perform." The downgrade is due to a weaker macroeconomic environment and diminished luxury demand, anticipated to continue through fiscal 2027. The brokerage has also lowered its 12-month price target for LVMH to €475 from €575.

In addition, RBC has cut its fiscal 2027 earnings-per-share (EPS) estimate for LVMH by 10%, to €23.03, which is 9% below the consensus. This reduction comes after the brokerage lowered its revenue forecast for the same period by 4%. Factors contributing to the decline in revenue expectations include the Middle East conflict, higher oil prices, equity market volatility, and tighter monetary policy.

The brokerage expects LVMH's organic revenue growth to be 3.1% in fiscal 2027, which is lower than the consensus estimate of 4.6%. Fashion & Leather Goods are expected to grow by 1%, compared to the anticipated 4.1% by the Street. RBC anticipates a 2% pricing contribution, a 1% volume decline, and a flat mix contribution for this period.

Furthermore, RBC forecasts LVMH's adjusted EBIT margin to be 21.7% in fiscal 2027, which is 80 basis points below the consensus estimate. This margin gap is projected to widen to 120 basis points in fiscal 2028. The brokerage attributes this sensitivity to LVMH's high fixed-cost base, making earnings particularly vulnerable to weaker revenue growth.

First-half 2026 revenue growth for LVMH was primarily driven by the United States and Japan, while Europe, Asia-Pacific, and China exhibited flat to declining performance. Looking ahead to the third quarter, RBC is forecasting group revenue of €18.30 billion, representing a 1% organic growth and 2% below consensus. Notably, Fashion & Leather Goods revenue is expected to decline by 2%, failing to meet the 300 basis points consensus.

The brokerage also expects Wines & Spirits revenue to fall by 2% organically and Cognac and Spirits to decline by 8%. Watches & Jewellery is projected to grow by 8% organically, while Perfumes & Cosmetics revenue is anticipated to increase by 3%. Selective Retailing is forecast to expand by 4% organically, although RBC anticipates an 8% drag from distribution rationalization.

RBC's revised fiscal 2027 EPS estimate for LVMH implies a 11% year-on-year growth, which the brokerage believes would require both revenue acceleration and margin expansion, factors that are not expected in the current environment. The brokerage has also reduced its fiscal 2027 and 2028 dividend-per-share estimates to €13 and €15, respectively.

Moreover, RBC anticipates EPS growth at a 9% compound annual rate through fiscal 2030, which is significantly lower than the average 19% annual growth rate observed over the previous decade. Key risks cited by RBC encompass a weaker-than-expected recovery at Louis Vuitton and Christian Dior Couture, heightened pressure on Fashion & Leather Goods margins, ongoing weakness in premium spirits, and suboptimal capital allocation around future mergers and acquisitions.