LOWERED EXPECTATIONS: In another sign of the global luxury slowdown, HSBC has downgraded its expectations for industry heavyweight LVMH Moët Hennessy Louis Vuitton in the third quarter.
HSBC said it expects LVMH to announce 8 percent organic growth in the period, including a 7 percent increase in fashion and leather-goods sales and a 6 percent gain for core brand Louis Vuitton. The bank anticipates stronger growth for the firm’s luxury retailing activity, which includes Sephora and DFS.
The downgrade comes after Burberry’s warning earlier this month and LVMH parent company Christian Dior’s lower-than-expected first-half results. HSBC maintained its neutral rating and 145 euro, or $186.75 at current exchange, target price for LVMH shares, issued on Sept. 2.
“Even if widely driven by company-specific issues, we believe the Burberry profit warning contributed to lower market expectations ahead of LVMH’s Q3 sales publication,” HSBC analysts Antoine Belge, Sophie Dargnies and Erwan Rambourg wrote in a research note.
They remarked that the sales-growth slowdown had an unfavorable comparison basis, since LVMH saw an organic sales increase of 18 percent for the group’s fashion and leather-goods activities in third-quarter 2011.
The analysts added that they expected the company’s earnings before interest and taxes margin to continue to decline in the second half and for Louis Vuitton’s underperformance to continue.
“As Chinese consumers become more sophisticated, megabrands like Louis Vuitton will lose market share,” they noted.
LVMH will issue its third-quarter data in mid-October.