By Andrea Figueras
Luxury companies start to report third-quarter results this week, with sector heavyweight LVMH kicking off the earnings season on Tuesday.
The industry has been hit by a pullback in spending that was particularly noticeable in China this year and among less affluent consumers in the West. Analysts said those trends likely continued into the third quarter.
With demand weakness well understood by the market, investors will be tuned in for any clues on what the rest of the year and 2025 might hold for luxury companies, as well as for signals on whether plans for economic stimulus measures in China could lift the industry's fortunes.
How individual brands weather the slowdown will probably be another point of attention. Analysts expect names exposed to wealthier shoppers to fare better, as these consumers are less affected by the economic environment.
WHAT TO WATCH:
--Many luxury companies are highly exposed to China, a country that once drove the sector's growth but is now facing a number of economic challenges. A sluggish property market and an uncertain economic outlook have hurt consumer sentiment, leading Chinese buyers to save rather than spend on luxuries. The Chinese government's stimulus measures sparked some hope of recovery in the country, but it seems too early to assess the impact on consumer behavior, AlphaValue analyst Jie Zhang said in a note. The question, Deutsche Bank analysts wrote, now moves into 2025 and to what extent Chinese stimulus might reinvigorate demand given that it is unclear whether the slowdown in consumption is a short-term issue or a structural trend.
--Japan was one of the bright spots for the luxury sector in the second quarter, mainly thanks to shoppers traveling from abroad. Travelers took advantage of a weak yen to buy high-end goods on the cheap, prompting a sales surge for luxury companies in the country. However, price hikes introduced by luxury brands in Japan and a stronger yen mean the country will be less of a tailwind for the industry in the third quarter, JPMorgan analysts said in a note. "We have less confidence on the pace of recovery in luxury spending in [the second half] or even into 2025 at this stage," Deutsche Bank said.
--The most exclusive brands have suffered less amid a general slowdown in luxury sales, as they cater to the wealthiest shoppers. By contrast, labels more exposed to less affluent, younger customers faced more difficulties. "It appears luxury is returning towards its roots and may be more reliant on a smaller, wealthier client base going forward," Deutsche Bank said. Investors generally hope a recovery among less affluent shoppers in the mid term will prove to be a growth engine for the industry, but the divergence between premium and more accessible luxury has been going on for two years now and the trends don't appear to have changed, Deutsche Bank analysts added.
WHEN COMPANIES ARE SCHEDULED TO REPORT:
-- LVMH Moet Hennessy Louis Vuitton: Oct. 15
-- Salvatore Ferragamo: Oct. 15
-- Brunello Cucinelli: Oct. 17
-- EssilorLuxottica: Oct. 17
-- Kering: Oct. 23
-- Hermes International: Oct. 24
-- Moncler: Oct. 29
-- Prada Oct. 30
-- Hugo Boss: Nov. 5
-- Richemont: Nov. 8
-- Burberry: Nov. 14
Write to Andrea Figueras at andrea.figueras@wsj.com
(END) Dow Jones Newswires
October 14, 2024 04:41 ET (08:41 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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