European luxury stocks tumble after Richemont suffers US slowdown

Shares in high-flying European luxury goods groups tumbled on Monday after Switzerland’s Richemont suffered a slowdown in US demand that punctured investor optimism about a rebound for the sector’s sales in Asia. 

Richemont fell more than 10 per cent, the most in about 14 months, after the owner of jewellers Cartier and Van Cleef & Arpels reported slightly lower than expected first-quarter sales, boosted by the recovery in China but weighed down by a slowing luxury market in the US. 

The group’s results dragged several of its competitors lower in early trading, with LVMH and Hermès — two of Europe’s biggest companies by market capitalisation — down 3.7 per cent and 4.2 per cent, respectively. 

“The market was overconfident about the strength of the US consumer, and that’s why we’ve seen the hit [to luxury goods groups] today,” said Emmanuel Cau, head of European equity strategy at Barclays.

In a call with analysts on Monday afternoon, Richemont chief financial officer Burkhart Grund said there was no change to the full-year outlook for the group. US sales had already started to pick up in June after slumping in May, although he said they were “not out of the woods” yet and sounded a note of caution on the 2024 US elections, which tended to have a damping effect on luxury demand.

“Shares down 9 per cent may have overreacted to the lack of surprise following three years of positive top-line [and] earnings per share momentum,” wrote Citi analyst Thomas Chauvet. “The call hosted by the CFO this afternoon was reassuring in many ways . . . [and] we still view Richemont as one of the best places to hide in luxury.”

Monday’s declines are a setback for a sector at the heart of Europe’s stock rally this year. In the spring, France’s LVMH became the first European company to reach a $500bn market value, even as China, the luxury sector’s biggest growth market, faltered following the country’s post-pandemic reopening. Its value has since dropped to $430bn.

China’s economy grew just 0.8 per cent in the second quarter compared with the previous three months, data released on Monday showed. But it was Richemont’s underwhelming US sales figures that caught investors’ attention, days after British group Burberry said its revenues in the three months to July increased in all regions outside the Americas.

“We are getting to the point where excess savings [in the US] are largely spent and inflation is biting on disposable income,” Cau said. “The market needs to become comfortable with the sustainability of US demand for luxury groups to keep pushing up.”

Richemont’s overall sales grew 19 per cent at constant exchange rates, just shy of analyst expectations, but sales in the Americas — driven by the US, the luxury sector’s biggest market by sales — turned negative compared with the same period last year.

The group’s jewellery division, driven by its biggest brand Cartier, grew 24 per cent, while Asia outside of Japan was up 40 per cent as the key Chinese market bounced back from Covid-19 restrictions at the end of last year. 

Bernstein analysts turned more cautious about Richemont’s prospects this year because of the company’s high exposure to expensive items such as jewellery, which consistently drive group sales but can be a harder sell to middle-class consumers in a slowing economy. 

“Richemont’s best foot forward — as usual — is the jewellery maisons,” said Luca Solca at Bernstein. “The Americas was the weakest region [which] seems consistent with Richemont’s softer performance in America in the previous quarter relative to peers.”