French luxury goods company LVMH Moët Hennessy Louis Vuitton (LVMH, FR:MC) reported third-quarter results that fell short of analysts’ expectations due to a slowdown in demand for luxury goods in China. LVMH reported a 3% decline in organic revenue, totaling 19.08 billion euros. This was lower than the 19.94 billion euros expected by analysts compiled by Visible Alpha, or organic growth of 0.9%.
LVMH shares fell nearly 2% on Tuesday following the results. MC stock has fallen more than 13% since the beginning of the year.
LVMH’s results hint at rough waters for the luxury goods market
LVMH is a European fashion house known for iconic luxury brands such as Dior, Louis Vuitton, Sephora, Fendi, and Bulgari. The company generally performs well in the broader luxury goods market due to its large marketing budget and other advantages over its competitors. But the decline in sales suggests greater challenges for the sector, especially for smaller competitors.
Like LVMH, Italian luxury brand Salvatore Ferragamo SpA (IT:SFER) also reported a 7.2% decline in third-quarter sales yesterday. Ferragamo blamed the poor performance on difficult trading conditions in Asia and warned that full-year results were expected to be at the lower end of analysts’ expectations.
China’s economic slowdown hits LVMH’s results
By region, LVMH’s sales in Asia excluding Japan decreased 16% year-on-year in the third quarter, compared to a 14% decline in the previous quarter. The decline in consumer spending in China continues to be a challenge for LVMH. A series of stimulus packages announced last month has sparked optimism for this important market, but investors and analysts are divided on the potential impact on demand.
Regarding Japan, LVMH reported that organic revenue growth slowed sharply to 20% from 57% growth in the previous quarter, mainly due to the strong yen.
Among the segments, sales in fashion and leather goods, the largest division, fell 5% in the third quarter. Meanwhile, sales in the Wine & Spirits business fell 7%.
Is LVMH stock a buy?
As a result of this result, analysts maintained their ratings on MC stock, including two buy recommendations from Bernstein and RBC Capital. Meanwhile, UBS reiterated its rating on the stock as hold.
Overall, MC stock receives a Moderate Buy rating on TipRanks, backed by a total of 15 recommendations from analysts. There are 9 “buy” ratings and 6 “hold” ratings. LVMH’s price target is 753 euros, which is 20.6% higher than the current trading level.
See more MC analyst ratings.
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