Luxury stocks are looking less shiny. That’s the message from French conglomerate LVMH's (LVMH.PA) third-quarter results on Tuesday which showed revenue in the three months to September grew just 9% year-on-year, a noticeable slowdown from the 17% growth in the previous two quarters. The disappointing results knocked 6% off LVMH stock on Wednesday and dragged down rivals Richemont (CFR.S) and Kering (PRTP.PA) which also fell about 3%.
CEO Bernard Arnault’s woes may get worse. Although sales growth to Chinese consumers hit 40% year-on-year, the overall growth of the Asia region excluding Japan slowed to 11% from 34% the previous quarter. That may compound investor worries about an overall slowdown of the company that’s behind Louis Vuitton and Christian Dior (DIOR.PA). Luxury companies have enjoyed buoyant valuations due to a perception that their customers are more resilient in the face of inflation. But that is changing. The number of millionaires fell from 62.9 million at the end of 2021 to 59.4 million at the end of 2022, according to the UBS annual wealth report. And China’s economic slowdown and a possible U.S. recession make their future even more uncertain.
LVMH is trading at 20 times its expected 2023 earnings after Wednesday's fall. That's cheap relative to its 10-year median of 23 times and its rivals. Hermès International (HRMS.PA) and Moncler (MONC.MI) are trading at 41 times and 21 times respectively. If the less exuberant times keep rolling, LVMH may find itself settling for an even less luxurious valuation. (By Karen Kwok)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
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