LVMH results send chill across luxury goods sector

Fri Jul 25, 2014 9:26am EDT
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By Astrid Wendlandt

PARIS (Reuters) - The outlook for the luxury goods industry darkened on Friday as poor results from industry leader LVMH (LVMH.PA: Quote) showed how the strong euro and political protests in Hong Kong were major factors curbing spending by Chinese and Russian customers.

Shares in LVMH, seen as setting the tone for the luxury goods industry, fell as much as 7.2 percent on Friday - the biggest one-day drop since 2009, dragging down companies in the sector such as Cartier-owner Richemont, down 3 percent and Gucci-owner Kering (PRTP.PA: Quote), which fell 3.7 percent.

LVMH's trading update late on Thursday revealed a marked drop in business in Hong Kong, where pro-democracy protests have deterred Chinese visitors, as well as a drop in demand from elsewhere in China, and a much-worse-than-expected slump in Japan, boding ill for the sector.

"We believe this sends a cold chill to investors who bought back into luxury in the spring in expectation of an upturn in demand from Chinese buyers," said JP Morgan Cazenove luxury goods analyst Melanie Flouquet.

Sales growth in the luxury goods industry, which bounced back between 2010 and 2012 after the financial crisis, has been slowing in the past two years, hit by China's crackdown on corruption and conspicuous spending.

Many luxury brands, such as Louis Vuitton, Gucci and some watchmakers, had invested heavily in new shops in China since the mid-2000s to entice middle and upper class buyers.

China had been seen as the industry's main growth engine, helping make up for lackluster demand in Europe and Japan.

But on Friday, LVMH's results cemented the view that buoyant demand from China would never return and the global luxury goods industry was entering a long period of modest growth.   Continued...

A huge advertisement for Dior perfume installed on the facade of a building is seen at the Place Vendome in Paris March 18, 2014. REUTERS/Charles Platiau