- Ongoing weakness in Asian demand
- Spirits sales especially poor -17%
- Diageo owns 34% of Moet-Hennessy
Investors hoping for a rebound in luxury stocks faced disappointment after France’s LVMH (MC:EPA) posted weaker-than-expected first-quarter sales due mainly to softer demand in Asia.
LVMH shares fell €35 or 7% to a four-year low of €495, dragging with them shares in British luxury goods seller Burberry (BRBY), down 28p or 3% to 668p, and Watches of Switzerland (WOSG), down 8p or 2.2% to 354p.
Shares in drinks maker Diageo (DGE) were also caught in the downdraught, losing 30p or 1.4% to £20.79, as were those of French spirit makers Pernod Ricard (RI:EPA) and Remy Cointreau (RCO:EPA).
SALES MISS ESTIMATES
For the three months to the end of March, LVMH reported group sales of €20.31 billion, 4% shy of the €21.21 billion consensus, with the most pain coming in Asia ex-Japan where sales were down 11% on last year.
By division, fashion and leather goods, the firm’s flagship business, saw sales decline 5% against market expectations of a 1% to 2% drop, while watch and jewellery sales were flat instead of up 2% as forecast and perfume and cosmetics sales were down 1.6% instead of rising as forecast.
The worst division was Moet Hennessy (wines and spirits), where sales fell 9% against consensus forecasts of a 4% drop.
While champagne sales (52% of the total) were more or less flat, spirits sales (48% of the total) were down 17%, hence the spill-over into Diageo (which owns 34% of MH) as well as other drinks stocks.
Regarding pricing and tariffs, the company confirmed it had spare capacity at its three US plants, although there have been quality issues in the past and it is questionable whether luxury buyers will embrace LVMH bags made in the US rather than at the firm’s Paris ateliers.
WHAT ARE ANALYSTS SAYING?
James Grzinic and Frederick Wild at US broker Jefferies cut their 2025 and 2026 full-year earnings estimates by 8% and 10% respectively in anticipation of a slower second quarter and a lower gross margin.
The pair also lowered their price target on the shares from a lofty €670 to €510, not far from where the stock is now trading.
Jelena Sokolova, senior equity analyst at Morningstar, argued it was too soon to assess the impact the recent market turmoil would have on luxury consumer spending, specifically in the US.
‘However, 2025 could likely be another difficult year for luxury given the geopolitics and its impact on markets and possibly consumer sentiment and the economic environment,’ added Sokolova.
