LVHM crashes 7.5% in worst plunge since COVID-19 over China’s luxury spending slowdown, stock down 21% YTD

(Bloomberg)- LVMH shares plunged after sales of fashion and leather goods fell for the first time since the pandemic, revealing the scale of the slump in demand from once insatiable Chinese consumers.

Organic revenue at the key unit whose brands include Louis Vuitton and Christian Dior declined 5% in the third quarter. Analysts had expected a small gain. That was the worst quarterly performance since the second quarter of 2020 when the world went into lockdown.

Shares in LVMH fell as much as 7.5% in early Paris trading, The stock is down 21% year-to-date. Wednesday’s decline in luxury shares erased the equivalent of about $33 billion from the market values of four key European stocks in the sector — LVMH, Hermes, Richemont and Kering.

“Most of our markets currently face economic challenges including mainland China,” LVMH Chief Financial Officer Jean-Jacques Guiony said during the quarterly presentation, adding that “consumer confidence in mainland China today is back in line with the all-time low reached during Covid.”

China Stimulus

Beijing’s recent string of stimulus measures have focused on fueling gains in the beleaguered equity market and shoring up the troubled property sector, without any meaningful boost to the consumption sector yet.

There’s “no improvement of luxury consumption after the recent macro policy pivot,” Citigroup Inc. said in a note based on its checks with a luxury mall in Eastern China during this month’s Golden Week holiday.

Guiony said it was currently hard to assess the potential impact on demand of such measures but “it shows that they are taking the issue very seriously,” he added, referring to the Chinese authorities.

LVMH’s organic sales in the region that includes China fell 16% in the quarter at LVMH, more than estimates, a disappointment for a group that had been among the most resilient in the face of cooling demand in the country.

Louisa Chen, a 35-year-old Guangzhou-based finance professional, says since last year she’s barely bought anything that costs more than 5,000 yuan (£703) after having her bonus cut by 50%. The cheer from the recent stock market rally notwithstanding, Chen isn’t ready to resume her old shopping ways.

The results are a “clear negative for the industry ahead of the third quarter reporting season and in the run-up to key Christmas and Chinese New Year trading periods,” Citigroup analyst Thomas Chauvet wrote in a note.

Run and controlled by Bernard Arnault, one of the world’s richest individuals, LVMH Moët Hennessy Louis Vuitton SE has some 75 luxury brands spanning fashion, jewellery, hotels and spirits. All of the group’s main units missed analysts’ estimates in the third quarter.