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Europe’s high-spending tourists set to lift French luxury sales in Q2
Global Banking & Finance Review®
Company
By Mimosa Spencer
PARIS (Reuters) – Free-spending tourists in Europe are expected to drive brisk second quarter sales at French luxury groups LVMH, Gucci-owner Kering and Hermes, helping to offset the impact of disruptions in China from COVID-19 restrictions.
High-end French and Italian fashion houses have been riding a wave of strong, post-pandemic demand for designer labels, with shoppers still eager to spend savings from lockdowns despite turbulent stock markets and rising prices.
The euro’s slide versus the dollar, which is likely to boost earnings for luxury companies producing in Europe, is encouraging visiting Americans to spend more.
“American consumers are travelling to Europe like there’s no tomorrow,” said Mario Ortelli of luxury mergers-and-acquisitions advisory firm Ortelli & Co, predicting they will boost the sector’s sales on the continent.
Investors will be looking out for signs of waning appetite for designer brands as well as plans by the luxury goods companies for further price increases, which are aimed at protecting margins.
“We continue to see outsized high-end demand in the market, as consumers of all nationalities emerge from the pandemic in a [you-only-live-once] mood. This has yet to normalise,†said Bernstein analyst Luca Solca, who expects such “normalisation” to start in the second half of this year.
Lockdowns in China could still cast a cloud over the earnings. In China, the sector’s sales were down by much as 40% over the quarter, based on estimates from Barclays, which forecasts global organic sales growth of around 11%, half the pace of the previous quarter.
Concern about the industry’s prospects in China flared up on July 15, when trading updates from Burberry and Richemont showed lockdowns pushed sales down by more than 30%, just as the country released weak second quarter GDP data.
The strength of the U.S. market will also be in focus for any signs of weakness. The United States overtook Europe as the largest luxury market last year and is attracting a flood of investments in new stores from European labels.
Consensus estimates are for second quarter sales growth of 17% at LVMH, 12% at Kering and 16% at Hermes, based on UBS forecasts.
LVMH releases first half results on July 26, Kering on July 27 and Hermes on July 29.
(Reporting by Mimosa Spencer. Editing by Jane Merriman)
Luxury goods are high-quality products that are not essential but are desired for their high status and quality. They often come with a high price tag and are associated with wealth.
Retail trade involves the sale of goods and services directly to consumers. It encompasses various businesses, including stores, online shops, and markets.
Consumer perception refers to how consumers view and interpret a brand or product based on their experiences, beliefs, and marketing messages, influencing their purchasing decisions.
Financial markets are platforms where buyers and sellers engage in the trade of financial assets such as stocks, bonds, currencies, and derivatives, facilitating capital flow in the economy.
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