European Luxury Sector Expected to See Slowing Growth -- Earnings Preview

Dow Jones01-18

By Andrea Figueras

Europe's luxury sector is expected to report slower sales growth in the coming weeks, as company updates begin coming in. The sector is facing normalization trends after the exceptional growth that followed the pandemic and a softer-than-expected recovery in China. Here's what you need to know ahead of earnings season:

WHAT TO WATCH:

-- DIMINISHED DEMAND: After the postpandemic euphoria, the luxury-goods industry has entered a phase of normalisation, which should fully materialise in 2024, Barclays analysts wrote in a research note. Goldman Sachs recently cut its 2024 global industry growth outlook to 6% from 8%, weighted toward the second half. "The upcoming reporting season should highlight the risk of another year of U.S. normalization, ongoing weakness in Europe and the possibility of a limited boost from travel to Chinese spend," Jefferies analysts said in a note to clients.

-- DAMPED CHINESE SPENDING: Companies saw signs of slowing luxury demand among Chinese consumers, one of the industry's largest customer groups, due to weakening domestic and travel spend, UBS analysts said in a research note. As lockdowns receded after the Covid-19 pandemic, the sector saw a slower-than-expected recovery in China due to domestic economic woes. That factor, combined with a more limited upturn in the recovery of travel to Europe and North America, led to lower expectations for spending growth among Chinese customers, according to Jefferies analysts.

-- RESTRAINED MARGINS: There is limited room for margin expansion in 2024 for luxury companies, Barclays analysts said. Most names might deliver flattish margin at best. Companies that are in the midst of turnaround stories such as Kering and Salvatore Ferragamo could have more risk of margin contraction since they need to maintain brand investments in a more competitive environment, Barclays said.

WHEN THE COMPANIES ARE SCHEDULED REPORT:

- TOD's: Jan. 24

- LVMH Moet Hennessy Louis Vuitton: Jan. 25

- Salvatore Ferragamo: Jan. 25

- Kering: Feb. 8

- Hermes International: Feb. 9

- EssilorLuxottica: Feb. 14

- Moncler: Feb. 28

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

January 18, 2024 10:00 ET (15:00 GMT)

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European Luxury Sector Expected to See Slowing Growth -- Earnings Preview

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