Luxury fever rises as Kering shares plunge

Except for LVMH, L'Oréal, and Hermès, the luxury goods sector's performance no longer rivals the exceptional results of 2022 and 2023. Last week, Kering caused considerable concern among its shareholders. This was due to an earnings warning that led to a record fall in a single session, even greater than during the 2008 financial crisis.

Indeed, the luxury group signaled to its investors that the financial results for the first quarter of 2024 are expected to show a decline of -10%. Gucci's sales, in particular, are expected to fall by -20% during this period. While the brand accounts for nearly 50% of the group's revenue, it still struggles to demonstrate its new desirability, especially among young Chinese customers, who represent 20 to 30% of Gucci buyers. For now, these customers prefer Louis Vuitton or Dior on social media.

The financial efforts required to reverse the trend will lead to mixed results throughout the year and are likely to influence the value of stocks, also affected by sectoral caution. Factors such as inflation, geopolitical uncertainties, the decline in the real estate market in China, and challenges faced by the middle class are all potential threats to demand. Only luxury giants like LVMH, L’Oréal, and Hermès remain stable or are growing. Together, they represent a market capitalization of approximately 836 billion euros, accounting for 32% of the CAC 40 index.

In recent days, Burberry has also shown a negative trend of more than 5%, and Ferragamo has shown a negative trend of -3%. Within the brands, nervousness is also evident in the unexpected changes of certain creative directors. Pierpaolo Piccioli has just left Valentino, where he had been the artistic director since 2008, reportedly in favor of Alessandro Michele, according to unconfirmed rumors.

What are the prospects for luxury stocks in 2024? Several financial analysts and banks, including UBS and HSBC, believe that growth is expected to slow further, with more modest margins.