LVMH Shares Have Lost Their Lustre
France's benchmark CAC 40 index is trailing the regional Stoxx 600 gauge by about 9 percentage points over the past year and has also underperformed during the current five-week market rebound. LVMH has fallen by a third in that time, accounting on its own for more than 70 percent of the CAC's relatively poor performance.
The luxury giant's stock valuation languishes at the bottom of a five-year range, but that still hasn't proved enough of a markdown to lure back investors.
Europe's top luxury stocks were once viewed as an answer to Wall Street's 'Magnificent Seven' tech megacaps. But LVMH Moet Hennessy Louis Vuitton SE and some of its peers have been battered by a slump in spending by wealthy Chinese shoppers, deterred by the faltering economy. The industry's outlook has grown even gloomier in the face of US President Donald Trump's tariffs on imports from the European Union.
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'There is no luxury sector, just stories,' said HSBC Holdings Plc consumer analysts led by Erwan Rambourg. 'As investors ask whether it's time to support luxury or not, we think more and more that the sector is characterized by dispersion.' There are weak, dull, and good stories among the the sector, the HSBC team added.
A lot of the shine has come off LVMH, the world's largest luxury group by sales. It's no longer the most valuable company in Europe — or even in France. Rival Hermès International SCA now has a larger market cap and trades on multiples that are 2.5 times higher.
'Lower valuations levels act more as a floor than a ramp for a rebound, which would necessitate more visibility on growth,' said Raphael Thuin, head of capital markets strategies at Tikehau Capital.
LVMH didn't immediately respond to a request for comment.
For the first time, the market seems to be applying some form of conglomerate discount to LMVH, with its highly luxury businesses. And its share-price decline has pulled LVMH into a tussle with Schneider Electric SE for the crown of the CAC 40's most influential stock. LVMH's weight in the index has fallen to 7.2 percent from 10.5 percent just a year ago.
'There's much more prudence regarding the stock, which is underperforming both its index and sector,' according to Ariane Hayate, a fund manager at Edmond de Rothschild Asset Management. LVMH 'needs momentum for key brands like Dior to bounce back and it's not the case yet,' she said.
A tentative rebound has materialized for luxury stocks of late. Progress in trade talks, with the US administration easing its stance on tariffs, as well as fiscal stimulus in China, are tailwinds for the depressed sector.
Strategists at Barclays Plc even raised the group to overweight this week. But for all that, investors seem more keen to invest in self-help stories such as Burberry, rather than to restore broader exposure. This morning, Richemont SA posted a rise in full-year sales, demonstrating its greater resilience than rivals like LVMH in the softening market.
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Analysts at Morgan Stanley on Friday lowered their LVMH earnings and sales estimates, and cut their target price on the shares. They highlighted adverse currency developments with the strength of the euro, the 10 percent US tariffs, as well as worsening trading trends in the sector, while keeping an equal-weight rating on the stock.
'In a nutshell, LVMH, like the rest of the industry, is now facing adverse demand from the three main nationalities at the same time — Chinese, Americans and Europeans, combined 75% of industry spend,' the Morgan Stanley team wrote.
And LVMH's share-price drop doesn't seem directly linked to the political turmoil triggered by President Emmanuel Macron when he shocked markets by calling snap parliamentary elections last summer. Over the past year, bank stocks have done well and there are more positive movers in the CAC than losers. Even in luxury, Hermès has posted strong gains, while in the extended consumer sector, EssilorLuxottica SA and L'Oréal SA have flourished.
'There's no political risk there in action and you can see that through the high performance of the French banking sector,' said Kevin Thozet, a member of the investment committee at Carmignac. 'We have invested in LVMH in the past, it's a great company, we'll most certainly invest in them in the future at some point, but at the moment we're really focussed on the very high end of the industry. We hold Hermès and Ferrari.'
By Michael Msika and Julien Ponthus
Learn more:
LVMH Sales Miss Expectations
First-quarter fashion and leather goods sales fell 5 percent for the luxury giant, whose brands include Louis Vuitton and Dior.
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