Market turns cold on luxury after LVMH's China letdown

LVMH's China Letdown Signals Extended Slowdown for Global Luxury Market

Luxury Market Faces Prolonged Challenges Amid Weak Chinese Demand

Oct 13 (Reuters) - LVMH's weaker-than-expected quarterly fashion and leather goods sales, hit by a deterioration in Chinese consumer demand for its flagship Louis Vuitton brand, have raised fresh doubts about the luxury industry's recovery prospects.

Analyst Reactions and Market Impact

Four sell-side analysts have cut their target price on LVMH shares by an average 9% following the results, the first quarterly report by a major sector player, expecting the miss to also signal weak performance at some of its competitors.

LVMH shares were down 1.5% by 0730 GMT. Its peers Hermes, Kering and Richemont were down by a similar degree.

Market Value Declines Across Leading Luxury Groups

Europe's leading luxury groups, mired in a three-year slowdown, have lost around €330 billion in market value since the start of the year, with LVMH alone shedding roughly 40%.

JPMorgan's Perspective on Chinese Consumer Trends

"Despite the recent share price weakness, we expect some further pressure on the space as a whole today, with confirmation that the Chinese cluster seems to have taken a material (and bigger than feared) step down", JPMorgan analysts said in a note to clients.

Outlook for Recovery and Division Performance

RECOVERY TO TAKE TIME, CFO SAYS

LVMH on Monday posted a 5% drop in organic sales at its fashion and leather goods division, which generates nearly half of group revenue, missing expectations in a Visible Alpha consensus for a 1.8% decline.

The group said a "less buoyant environment" in China impacted its revenues, contributing to 1% organic sales growth overall, excluding currency swings, to €18.5 billion ($20.68 billion), below expectations for 1.3% growth.

Comments from LVMH's CFO

Asked about Louis Vuitton's recovery prospects in a call with analysts, the group's Chief Financial Officer Cecile Cabanis said: "It takes a bit of time, but I don't think there are a lot of shortcuts here".

Performance of Watches and Jewellery Division

Adding to investor concerns, growth in LVMH's watches and jewellery division, home to brands including Bulgari and Tiffany, slowed to 6% from 9% in the first half of the year, marking a changing trend in one of luxury's few bright spots.

Additional Information

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(Reporting by Alessandro Parodi in Paris and Jakob Van Calster; Editing by Anna Pruchnicka and Jan Harvey)