Air hole for French luxury: what actions should we favor? Information provided by Café de la Bourse • 25/10/2021 at 14:05

(Photo credits: Unsplash - Mal Querrer)

Luxury values are very volatile in October 2021, a phenomenon notably due to the Chinese situation: the indicators are less good than expected and, earlier this summer, announcements of the economy regulation were made.

What's going on in the luxury sector?What prospects for our French giants in the LVMH, Kering and Hermès sector?We tell you more in this article.

China disappoints and luxury falls on the stock market

The Chinese economy experienced its slowest growth in one year in the third quarter, penalized by electricity shortages, bottlenecks at the level of supply chains and the COVVI-19 epidemic.The gross domestic product increased by 4.9 % compared to the previous year, which does not correspond to the forecasts of economists of 5.2 %.

Recall that Xi Jinping has announced and took economic regulatory measures this summer.He notably launched sanctions against the real estate sector, technology and health sector giants who have undoubtedly impacted growth.

However, when China is bad, luxury actions suffer.China is their main growth engine and represents 30 to 50 % of their turnover.In addition, the market is again concerned with the will of Xi Jinping, the Chinese president, to tax more consumption and to want to better redistribute wealth to reduce inequalities.

The actions of French LVMH, Kering and Hermès luxury companies fell on Monday after the publication of these disappointing economic figures in China, an essential market for many luxury companies.Kering lost 3 % during the session on Monday October 18, while LVMH fell 3.8 %.Hermès also dropped by 2.7 %.

What are the prospects for each of these companies now?

What prospects for LVMH, Kering and Hermès actions?

LVMH is doing well, despite China

LVMH announced last week for record sales for the third quarter, thanks to the Louis Vuitton brand, which represents the majority of the group's operating profit with a still strong demand in the United States and China.

The quarterly turnover amounted to 15.5 billion euros, against 15 billion euros expected by analysts.There is organic growth in sales, which eliminates the effect of currency fluctuations, 11 % in the quarter compared to the same period of 2019 before the pandemic.

The wide range of LVMH products offers options for "all budgets", and in China, the group mainly sells to people from the upper and easy middle class, not necessarily to the very wealthy.

The LVMH action climbed 5 % to the announcement of the results before relating to 2.2 % on Monday at the announcement of Chinese trimester indicators.Overall, the LVMH title is up over the past two weeks with market confidence.

Kering: Gucci sees his sales suffering

Kering's action dropped after the slowdown in Gucci's growth, its biggest brand.Italian brand sales increased by 3.8 % in the third quarter compared to the previous year, Kering said in a statement on Tuesday.Analysts had planned for a 9.3 % increase.The performance has suffered from the restrictions linked to the Covid epidemic, which hampered demand, especially in China, but also in New Zealand, Australia and other countries.

The title dropped 5.8 % in the first exchanges in Paris Wednesday October 20.

Hermès: solid performance, as usual

The turnover of the Birkin bag manufacturer, Hermès, increased by 31 % in the third quarter, exceeding market expectations.Revenues at the end of the quarter amounted to 2.37 billion euros, 40 % more than their level before the 2019 pandemic.

Financial director Eric du Halgouët has concerned concerns about a slowdown in China, the largest market in the sector, declaring that store attendance, the rate of purchase in store by visitor and the average basket in its stores were allComing in the last quarter.He said that the group had so far noted any impact of the comments of Chinese leaders indicating plans to reduce wealth differences in the country, in particular through property taxes.

The Hermès action has increased by 5 % since the start of the week.

Conclusion: LVMH and Hermès, before Kering

LVMH and Hermès prove resilience in the storm of uncertainties that luxury confronted: epidemic recovery, drop in demand in China, drop in production following shortages, redistribution of Chinese wealth ... These two companies have shown aNice growth in this troubled environment.Kering suffers more and can possibly be left out for the moment.

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