French luxury in turmoil: which luxury actions to favor? – Boursorama

Luxury stocks are very volatile in October 2021, a phenomenon mainly due to the Chinese situation: indicators are worse than expected and, earlier this summer, announcements of economic regulation were made.

What is happening in the Luxury sector? What are the prospects for our French giants in the LVMH sector, Kering and Hermès? We tell you more in this article.

China disappoints and luxury falls on the stock market

The Chinese economy experienced its slowest growth in a year in the third quarter, hit by power shortages, supply chain bottlenecks and the COVID-19 outbreak. Gross domestic product increased 4.9% from the previous year, which does not match economists’ forecast of 5.2%.

Recall that Xi Jinping announced and took economic regulatory measures this summer. In particular, he launched sanctions against the real estate sector, tech giants and the healthcare sector which have undoubtedly impacted growth.

However, when China is bad, luxury stocks suffer. China is their main engine of growth and represents 30 to 50% of their turnover. In addition, the market is again concerned about the desire of Xi Jinping, Chinese President, to tax consumption more and to want to better redistribute wealth to reduce inequalities.

Shares of French luxury firms LVMH, Kering and Hermès fell on Monday after disappointing economic figures were released in China, a key market for many luxury firms. Kering lost 3% in the session on Monday, October 18, while LVMH fell 3.8%. Hermès also fell 2.7%.

What are the prospects now for each of these companies?

What are the prospects for LVMH, Kering and Hermès shares?

LVMH is doing well, despite China

LVMH last week announced record third quarter sales, thanks to the Louis Vuitton brand, which accounts for the majority of the group’s operating income with continued strong demand in the United States and China.

Quarterly turnover amounted to 15.5 billion euros, against 15 billion euros expected by analysts. We see organic sales growth, which eliminates the effect of currency fluctuations, of 11% over the quarter compared to the same period in 2019 before the pandemic.

LVMH’s wide product line offers options for “all budgets”, and in China, the group sells mostly to upper-middle-class and affluent people, not necessarily the very wealthy.

LVMH shares climbed 5% when the results were announced before falling 2.2% on Monday when Chinese indicators for the third quarter were announced. Overall, the LVMH share is up over the last two weeks with market confidence.

Kering: Gucci sees its sales suffer

Kering’s stock fell after growth slowed at Gucci, its biggest brand. Sales of the Italian brand rose 3.8% in the third quarter from a year earlier, Kering said in a statement Tuesday. Analysts had forecast an increase of 9.3%. Performance suffered from restrictions linked to the COVID epidemic, which hampered demand especially in China, but also in New Zealand, Australia and other countries.

The title fell 5.8% in early trading in Paris on Wednesday, October 20.

Hermès: solid performance, as usual

Sales of Birkin bag maker Hermès increased 31% in the third quarter, exceeding market expectations. Revenue at the end of the quarter stood at 2.37 billion euros, 40% more than its level before the 2019 pandemic.

CFO Eric du Halgouët dismissed concerns of a slowdown in China, the industry’s largest market, saying that store footfall, in-store purchase rate per visitor and average shopping cart in its stores were all up in the last quarter. He said the group had so far seen no impact from comments from Chinese leaders indicating plans to narrow the wealth gap in the country, including through property taxes.

Hermès shares are up 5% since the start of the week.

Conclusion: LVMH and Hermès, before Kering

LVMH and Hermès are showing resilience in the storm of uncertainties facing luxury goods: epidemic recovery, drop in demand in China, drop in production following shortages, redistribution of Chinese wealth … These two companies have shown a good growth in this troubled environment. Kering is in more pain and may possibly be left out for now.

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