Luxury stocks remain under pressure despite stronger-than-expected earnings from industry leader LVMH, which posted a modest 1% sales increase in the last quarter.
Rising costs linked to the Paris 2024 Olympics and an employee share scheme weighed on the group’s stock, triggering a 4% decline.
Kering, the parent company of Gucci, also saw its shares slide by 4.7%, while Hermes experienced a 1% dip, highlighting broader industry concerns.
The luxury market, which contracted by 2% in 2023 due to China’s struggling property sector, is attempting to stabilise.
However, mixed signals from European luxury firms indicate that investors remain cautious, with some brands outperforming expectations while others continue to struggle with macroeconomic headwinds.
Global economic uncertainty and inflationary pressures have further complicated the outlook, affecting consumer sentiment across key markets.
Economic slowdown, China crisis hit demand
LVMH’s sales growth, while minimal, surpassed analyst forecasts, providing some relief to the luxury sector.
However, cost pressures tied to major events and employee compensation dampened optimism, leading to a market correction.
Kering’s share decline reflected ongoing challenges within its portfolio, including Gucci’s efforts to reposition itself amid shifting consumer preferences.
Meanwhile, Hermes demonstrated relative resilience, benefiting from a clientele that remains less affected by economic turbulence.
This helped limit its share decline to just 1%, reinforcing its reputation as one of the luxury industry’s most stable players.
Despite these mixed performances, the broader luxury market is still contending with declining demand from key regions.
China, historically a major growth engine for luxury brands, remains a significant concern.
Economic uncertainty and the country’s property crisis have led to subdued consumer spending, affecting high-end retail performance.
According to Bain & Company, luxury sales fell 2% last year, underscoring the sector’s ongoing struggles.
The weak property market has also hurt consumer confidence, limiting discretionary spending among affluent buyers who traditionally drive luxury sales.
Stocks attempt rebound but face volatility
Despite recent setbacks, luxury stocks have shown resilience in 2024, with some companies posting impressive gains.
Since the start of the year, Richemont has surged by 25%, LVMH by 18%, and Hermes by 15%, reflecting investor confidence in the sector’s long-term potential.
Burberry and Richemont, in particular, have exceeded forecasts, raising hopes of a recovery.
Analysts at Deutsche Bank anticipate a faster-than-expected rebound for the luxury sector, driven by improving macroeconomic conditions and strategic brand repositioning.
However, short-term volatility remains a concern, as companies navigate cost pressures, shifting consumer trends, and unpredictable economic conditions.
High interest rates in Western economies have also contributed to fluctuations in consumer spending, with middle-tier luxury brands feeling the impact more acutely than ultra-premium names like Hermes.
Luxury brands are walking a fine line between maintaining exclusivity and adapting to changing market dynamics.
As high-end retailers adjust to evolving consumer behaviours and macroeconomic uncertainties, the sector’s path to recovery remains uncertain.
While recent earnings reports offer glimpses of resilience, investors remain watchful of the factors that could shape the luxury industry’s trajectory in the months ahead.
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