The shares of high-flying European groups that produce luxury goods fell on Monday, after Switzerland’s Richemont experienced a slowdown in US sales. This shattered investor confidence about the recovery in Asia’s sales for this sector.
Richemont dropped more than 10%, the most since about 14 months. The owner of jewellers Cartier & Van Cleef & Arpels announced slightly lower first-quarter sales than expected, boosted but weighed down a slowing US luxury market.
The group’s performance pushed several of its rivals lower in the early trading. LVMH, Hermes, and other major European companies, by market capitalisation, were down 3.7 and 4.2 percent, respectively.
Emmanuel Cau is the head of European Equity Strategy at Barclays. He said, “The market overestimated the strength of the US consumers, which is why we have seen the damage [to luxury good groups] today.”
Burkhart Grund, Richemont’s chief financial officer, told analysts in a conference call on Monday that the outlook for the entire year had not changed. US sales started to improve in June, after a slump in May. However, he warned that they are “not out the woods yet” and warned against the US elections in 2024, which tend to dampen luxury demand.
Citi analyst Thomas Chauvet wrote that the shares’ 9 percent drop may have been an overreaction to the lackluster surprise after three years of top-line growth [and] positive earnings per share momentum. The CFO’s call this afternoon was very reassuring. . . “We still consider Richemont to be one of the most luxurious places in which you can hide.” Monday’s losses are a blow to a sector that has been at the core of Europe’s rally in stock prices this year. In spring, France’s LVMH was the first European firm to reach a market value of $500bn, even though China, the luxury sector’s largest growth market, faltered after the country’s reopening following the pandemic. Since then, its value has dropped to $430bn.
Data released on Monday revealed that China’s economy only grew by 0.8% in the second quarter, compared to the previous three-month period. Richemont’s disappointing US sales figures caught the attention of investors, just days after British group Burberry announced that its revenues for the three-month period ending July had increased in all other regions.
Cau stated that “we are reaching a point where the excess savings [in America] have been largely used up and the inflation is affecting the disposable income.” “The market must be comfortable with the sustainable US demand for luxury group to continue pushing up.”
Richemont’s overall sales increased 19% at constant exchange rates. This was just short of analyst expectations. However, sales in the Americas, driven by the US – the largest market for luxury goods based on sales – turned negative when compared to the same period last.
The jewellery division of the group, led by its largest brand Cartier, increased 24 per cent. Asia outside Japan grew 40 per cent after the Chinese market recovered from Covid-19 restrictions imposed at the end last year.
The Bernstein analysts are more conservative about Richemont this year due to the high exposure of the company to expensive items like jewellery. These items drive group sales, but they can be difficult to sell to middle class consumers during a slowing economic climate.
Bernstein’s Luca Solca said, “Richemont is best represented by its jewellery houses as per usual.” “The Americas were the weakest region, which seems consistent with Richemont’s lower performance in America relative to its peers in the previous quarter.”