Subdued demand from domestic consumers and challenging year-over-year comparisons with last year’s surge post lifting of COVID restrictions are expected to dampen the sales of luxury brands in mainland China during the first quarter.
The world’s largest luxury group, LVMH is set to report financial results for the first quarter on April 16, followed by competitors Kering, Prada, and Hermès a week later. Burberry and Richemont are expected to follow suit in May.
JPMorgan predicts, overall sales for LVMH are expected to remain flat during the first quarter, with the fashion and leather goods division growing by 2 per cent. Figures from UBS analyst shows, organic sales growth for LVMH are expected to remain at 3 per cent organic sales growth for LVMH during the first quarter ending in March, with projections for other luxury players varying.
Kering forecasts first quarter sales to decline by 10 per cent decline as against the 3 per cent anticipated by analysts. The company attributes this decline to a sharp drop in sales in Asia, particularly from its flagship label Gucci. This underperformance has raised concerns that other high-end fashion brands may also be facing challenges in the Chinese market.
Analysts at HSBC note that Chinese tourists in Hong Kong, Macau, and Singapore are showing less inclination towards lavish spending, further exacerbating the situation.
Kering's struggles in China have contributed to its lower valuation compared to rivals. Its 12-month forward price-to-earnings ratio of 16 lags behind LVMH's 24 and Hermès's 51.
There is uncertainty regarding the pace of recovery in high-end fashion consumption, even as year-over-year comparisons become less challenging. Analysts at Barclays predict a slowdown in global luxury goods sales growth to mid-single-digit percentages, down from nearly 9 per cent last year and double-digit growth in previous years.
As the cost of living rises, consumers are becoming more discerning about luxury purchases, leading to diverging performance among brands. Stronger performers like Louis Vuitton, Chanel, and Hermès are expected to fare better than brands like Burberry, which is undergoing restructuring.
Caroline Reyl, Head – Premium Brands, Pictet Asset Management, notes that certain brands will benefit more than others in this environment. Sales growth for companies like Prada, which has seen success with its Miu Miu label among younger Chinese shoppers, are expected is expected to remain slow. Global reail sales for Prada are expected to rise by 9 per cent in the first quarter, according to Jefferies.
