LVMH’s China letdown points to prolonged luxury industry pain

LVMH, the world's largest luxury group, reported weaker than expected sales for its fashion and leather goods division in the latest quarter, with demand in China proving to be the main culprit. The company's Paris-listed shares dropped 1.5% by 0850 GMT, trading near their lowest price in over six years, further fueling concerns about the slow recovery in the luxury industry, which has been grappling with a three-year slowdown.

This latest quarterly report from a major sector player has led to a 7% average reduction in target prices for LVMH shares, as five sell-side analysts have cut their estimates, citing the miss as a potential indicator of weak performance at some of its competitors.

LVMH's Chief Financial Officer, Cecile Cabanis, reassured investors that a recovery would take time, stating that there are no short-term solutions. Instead, the brand has opted to focus on long-term initiatives rather than resorting to drastic measures such as price cuts. Despite the recent decline in LVMH's shares, the company expects further pressure on the luxury sector as a whole due to the more significant decline in China's performance than initially anticipated.

China had initially emerged as the primary growth engine for the luxury sector, but sales have been sluggish since the end of the post-pandemic boom. Weak economic growth and a property sector crisis have adversely affected shoppers, contributing to the decline in demand for luxury goods. In addition to the challenges faced by LVMH, shares in rival luxury groups Hermes, Kering, and Richemont also suffered losses, falling between 1% and 2.2% on Tuesday.