LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s largest luxury-goods company, fell the most in almost three years, sending shares of peers tumbling, after earnings missed estimates amid weaker consumption in Asia.
The shares plunged as much as 7 percent in Paris, the steepest intraday drop since Sept. 22, 2011. First-half profit from recurring operations fell 5 percent to 2.58 billion euros ($3.5 billion), LVMH said yesterday after European markets closed, less than the 2.76 billion-euro median analyst estimate.
Asian demand weakened “quite significantly” in the second quarter, led by slower Chinese spending at home and abroad, Chief Financial Officer Jean-Jacques Guiony said on a conference call. So-called organic sales slumped 11 percent in Japan, after gaining 32 percent in the first quarter before a 3 percentage-point increase in that country’s value-added tax.
“It looks as if LVMH is taking the full brunt of a subdued demand environment,” Luca Solca, an analyst at Exane BNP Paribas, said by e-mail.
Political unrest in Hong Kong caused business to slow markedly there, while March’s disappearance of a Malaysian airliner affected sales in Singapore and Thailand, Guiony said.
“Throughout the region we’ve seen some weakness in fashion and leather,” the executive said. Asia, excluding Korea, is “under pressure.”
LVMH shares were down 6 percent at 132.80 euros as of 10:40 a.m. in Paris, wiping out this year’s gains. Kering SA (KER), which reports first-half earnings July 30, fell 3.3 percent in Paris, while Burberry Group Plc fell 1.9 percent in London.
LVMH’s “unusual miss sends a cold chill over luxury,” Melanie Flouquet, an analyst at JPMorgan Chase & Co., said in a note to clients. She has a neutral rating on the stock.
Sales in most divisions missed estimates. Revenue growth of 4 percent at the fashion and leather-goods unit trailed analysts’ projections by 3 percentage points.
The performance “is not very reassuring, neither for LVMH nor the sector,” Rahul Sharma, managing director of Neev Capital, said by phone. “I’m not particularly optimistic on Gucci,” the Italian handbag maker owned by Kering, he said.
Hong Kong, where wealthy Chinese have increasingly shopped to avoid the mainland’s luxury taxes, will remain fragile in the second half, Swatch Group AG Chief Executive Officer Nick Hayek said July 22 as the watchmaker reported its first drop in first-half earnings in five years.
LVMH’s comments on Japan echoed Hermes International SCA, (RMS) the Birkin bag maker it partly owns, which last week reported a 6.3 percent drop in quarterly sales in the country. Hermes shares slid 1.6 percent.
The worse than expected performance of LVMH’s fashion and leather-goods unit “makes the whole profile a little bit riskier because it’s no longer about the brand,” Sharma said. “If you step away from logo it’s important you have the right shapes.”
LVMH is introducing more expensive products with fewer logos at handbag maker Louis Vuitton, its biggest brand, while increasing investment at some of its smaller fashion labels. The shift is designed to boost Vuitton’s appeal to the wealthiest shoppers amid competition from lower-priced rivals.
Total sales advanced 3 percent to 14 billion euros in the half year. Analysts estimated 14.2 billion euros. Excluding currency swings and acquisitions, revenue climbed 5 percent.