LVMH Investors Remain Wary Amid Concerns Over Luxury Market Growth

LVMH's Market Position and Challenges

PARIS, Jan 27 (Reuters) - Investors are hopeful LVMH's annual results on Tuesday will show further signs the luxury giant is recovering after a lengthy slowdown, but they also want more action from CEO Bernard Arnault to win back shoppers alienated by hefty price hikes.

Investor Sentiment

Investors piled into LVMH shares in October at the first sign of a rebound in key market China, sparking an $80 billion luxury sector rally. But the stock has lost most of those gains, sliding 9% since the start of this year as tensions between Europe and the U.S. over Greenland weighed on markets.

Sales Trends

"There's a greater hope that luxury spend is going to be a little bit better," said Paul Moroz, portfolio manager at Mawer Investment Management, which holds LVMH shares. 

Strategies to Attract Consumers

"But there is a risk some consumers are tapped out," he said, adding the French group may struggle to further raise prices or force demand through new products.

RETURN TO POST-PANDEMIC STELLAR GROWTH UNLIKELY

The post-pandemic boom drove revenue in LVMH's main fashion and leather goods division to 42 billion euros ($50 billion) in 2023, nearly double its 2019 sales. But that stellar growth may never return, several investors told Reuters.

The $346 billion group of brands spanning handbags to watches and champagne is expected to report a 0.3% decline in fourth quarter organic sales, stripping out currency effects, according to analyst estimates compiled by Visible Alpha. Operating profit for 2025 is estimated at 17.15 billion euros, down from 19.57 billion euros the year before.

The slide in sales has forced LVMH to turn its focus back to so-called "aspirational" luxury shoppers who have flocked to more affordable brands like Coach or Ralph Lauren.

With the exception of high-end rival Hermès, most luxury groups will make minimal price increases of less than 2% this year, said Ariane Hayate, portfolio manager at Edmond de Rothschild in Paris, meaning they will have to rely on selling more items to grow revenue. 

Big brands are also facing subdued consumer spending and growing competition in China, for a decade the growth engine of global luxury.

"We have to admit it: competition from Chinese brands is now a reality," said Hayate, pointing to brands like Bosideng, Songmont and Laopu Gold gaining in popularity. 

LVMH BETS ON BEAUTY, BAG CHARMS TO LURE SHOPPERS BACK 

Flagship brand Louis Vuitton's debut beauty range, including a $160 lipstick, is part of LVMH's strategy to bring aspirational consumers back into stores, said Caroline Reyl, head of premium brands at Pictet Asset Management in Geneva.

Bag charms for handbags, fuelled by a global craze for Labubu dolls, are another weapon the group is deploying to target younger and less affluent shoppers.

“A luxury buyer in China is  maybe trading  down a bit in terms of their  handbag, but then accessorizing with Labubus and things like that,” said Sean Sun, portfolio manager at Thornburg Investment Management in Santa Fe. “So you're spending less on the bag, spending more on... trying to be more unique.” 

In its own spin on the toothy monster figurines, Louis Vuitton sells doll-like “Vivienne” bag charms from $850 to $1,810. LVMH's smaller handbag brand Moynat in October even launched a collection in collaboration with Labubu creator Kasing Lung. 

“With the price of handbags and major leather goods increasing significantly over recent years, aspirational accessories play a crucial role,” said Josie Gardner, head of buying for accessories at luxury department store Harrods in London.

($1 = 0.8441 euros)

(Reporting by Helen Reid and Tassilo Hummel in Paris; Editing by Lisa Jucca and Emelia Sithole-Matarise)