Louis Vuitton at Risk From Economic Slowdown

Now dethroned from Novo Nordisk as Europe's most valuable company, the largest luxury retailer in the EU, Louis Vuitton, will update its sales for the last quarter. Will the cost of living crisis continue to weigh on the company, or is a turnaround in store?

There is Still Money For Some Things

Luxury valuations remain higher than the rest of the market, with LVMH and Richemont having higher price-to-earnings ratios than the STOXX 600 despite consumers being pinched by higher prices. Goods at the top end of the luxury scale seem to be still in high demand, and analysts see personal luxury goods sales increasing by 5-12% this year, which has kept the CEO of LVMH, Bernard Arnault, optimistic about growth this year. They also still see the company's sales growing substantially, with an average projection for revenue to reach €87.7B, well above the €79.2B reported in the prior year. Investors will be keen to see if the company will reiterate its guidance for the rest of the year.

The rosy projections for the luxury sector have a couple of wrinkles. On the one hand, they are based on an expectation that China's economy will outperform after noting that luxury spending in the US has started to slow. But not all luxury is the same; the analysis notes that while so-called "aspirational" luxury spending has faltered, top-end luxury sales have continued to boom. A trend that LVMH's watch division is looking to lean into, with the new CEO of the division, Jean Arnault, betting on more expensive and exclusive products to entice big spenders. The focus turns to higher margins over volume sales, a model that, if successful, could be replicated in other business areas.

Staying Ahead of the Curve

LVMH's sales in the third quarter are expected to exceed the market, with organic revenue projected to expand at 12% over the prior year. With a substantial amount of cash on hand and the CEO having previously committed to rational acquisitions, there is likely to be interest in comments on potential M&A as the company has not made any major purchases since it last updated the market. In fact, communication from the company has been relatively quiet since the chief officer was reportedly being investigated for money laundering in coordination with a Russian oligarch.

Guidance for the fashion and leather division will likely be the main focus, as it remains the mainstay of the company's sales. But other divisions like the aforementioned watches and perfumes have seen growth above the average for the company and could get a second look from investors.

LVMH in Accelerated Downtrend

Louis Vuitton's fall to 700 per share may be part of a larger flag pattern unless the round support has put the low in. If bulls can reclaim 760 and 830, probabilities will shift largely towards the 900 peak, whereas a slide lower down may induce additional selling towards 660 but unlikely 580 unless we see a more extensive correction down to 530. While outside the descending channel, the short-to-medium-term price action might remain downward.

Source: SpreadEx / LVMH

Key Takeaways

Louis Vuitton, Europe's largest luxury retailer, faces economic risks but remains optimistic about growth, with analysts predicting a 5-12% increase in personal luxury goods sales. The company plans to focus on high-end luxury and higher margins, and sales are hoped to exceed market expectations. Fashion and leather remain the mainstay, but watches and perfumes show promising growth.