by Mimosa Spencer

PARIS (Reuters) – Investors are preparing for a sharp slowdown in quarterly sales in the luxury sector, ahead of the publication of results for the January-March period, in a context of sluggish demand in China, particularly after the rebound in sales observed in the first quarter of 2023 with Beijing’s lifting of strict health measures linked to Covid.

LVMH, the world’s leading group in the sector, will open the ball on April 16, followed by its rivals Kering, Prada and Hermes the following week. Burberry and Richemont will report their results in May.

A shadow hangs over the luxury companies’ earnings season since Kering unexpectedly warned last month that first-quarter sales were expected to fall 10%, compared to a 3% decline expected by analysts.

Kering attributed the forecast to falling sales in Asia of its flagship brand, Gucci.

The announcement, however, raised concerns about a potential bottom in China for other high-end fashion brands.

There is “a kind of crisis that lasts, a little soft. We don’t really know where it’s going,” declared Olivier Abtan, consultant at AlixPartners.

“All growth engines” have been at a standstill for a number of quarters, he added, describing this dip as unprecedented.

According to analysts at HSBC, Chinese tourists traveling to Hong Kong, Macau and Singapore also do not appear to be “the spending type”.

Kering’s difficulties in China partly explain the fact that its stock market valuation is lower than that of its rivals. Its price/earnings ratio is currently 16, compared to 24 for LVMH and 51 for Hermes, according to LSEG data.

Following the warning on its results, Kering saw its stock plunge 15%, while LVMH fell 7%. Hermes, considered less vulnerable than its rivals due to a wealthier customer base, lost 2%.

There is uncertainty over consumers’ newfound appetite for high-end fashion products in the short term, even once sales are compared to less impressive figures.

Annual growth in global luxury sales is expected by analysts at Barclays to slow to around 5%, compared with almost 9% last year and double-digit growth in the previous two years.

Against a backdrop of rising costs of living, consumers have become more selective in their purchases of high-end products, with the effect of amplifying the gaps between brands continuing to record solid sales, such as Louis Vuitton, Chanel and Hermes, and others like Burberry, which is undergoing a major overhaul.

Some brands will benefit from the situation “more than others”, commented Caroline Reyl, in charge of premium brands Pictet Asset Management. “We have seen this very clearly for two years,” she added.

Sales growth should also have slowed for high-growth groups, such as Prada, whose Miu Miu brand has become essential among young Chinese consumers. Prada retail sales for the January-March period are expected by Jefferies to increase by 9.3%.

Regarding LVMH, JPMorgan anticipates a generally stable level of sales in the first quarter, with growth of 2% for its fashion and leather goods division – including the Louis Vuitton and Dior brands – which had recorded growth in the fourth quarter. 9% over one year.

In organic data, according to data cited by UBS, LVMH sales are expected to increase by 3% in the first quarter, and those of Richemont, up by 1%. The consensus gives sales growth of 13% for Hermes over the period, while Burberry is given a decline of 10%.

(Mimosa Spencer; Jean Terzian, edited by Zhifan Liu)

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