The luxury trend has come to an end.

Luxury stocks leading the European stock market are struggling.

On October 10th, local time, global luxury leader LVMH Group released its earnings report, with third-quarter revenue unexpectedly lower than expected and growth rate less than half of the previous quarter. Specifically, the wine and spirits division was hit, while the perfumes and cosmetics, as well as fashion and leather goods divisions, performed mediocrely.

On the day of the earnings report release, LVMH's stock price plummeted by 7%, falling about 27% from its previous high in July, indicating that the prosperous era of the luxury goods industry's "money-making with eyes closed" has come to an end.

The sharp decline in LVMH's stock price also affected other luxury goods groups, with Kering and Richemont falling by more than 2% and 4% respectively.

The three-year period of prosperity has come to an end, and luxury goods stocks, once soaring high, will eventually face reality. However, some believe that their prices are still low in the capital market, and the future is promising.

Luxury goods stocks struggling, nightmare comes true

With the tightening of global financial markets, it was widely expected that the consumption trend of luxury goods would recede, and LVMH was the first to bear the brunt.

LVMH owns 75 brands including Louis Vuitton, Dior, and Tiffany, making it the largest group in the luxury goods industry to date. As of the day before the earnings report was released, LVMH's performance this year has been very strong, with its stock price rising by more than 21% cumulatively. In April of this year, LVMH became the first European company with a market value exceeding $500 billion, ranking tenth in the world, second only to Tesla.

Since the outbreak of the pandemic in 2020, the luxury goods industry has experienced a three-year period of prosperity. However, with the bottoming out of savings and the normalization of consumer behavior, the market engine is slowing down. In addition, with the frequent interest rate hikes by central banks in Europe and the United States, the demand prospects for luxury goods have become uncertain.

The previous quarter's earnings report from LVMH already showed a slowdown in the global market. Jean-Jacques Guiony, CFO of LVMH, stated at the time that the global consumer sentiment this year is not as high as in 2021 and 2022, and the market is trending towards normalization. He also emphasized that the situation in the US market, the largest luxury goods market, is not as good as before. Previously, Wall Street News mentioned that the slowdown in the US economy will become a nightmare for luxury goods consumption. HSBC analysts also believe that the normalization of local demand in Europe and the reduction of support from the tourism industry are both contributing to the "broad normalization" of profit growth in the third quarter.

Wall Street is optimistic about the luxury goods industry and believes that the current stock price is at a low level

In the context of a weak global economy, luxury stocks still need to overcome challenges, but it is also a choice to continue holding the stock if one has keen insight and judgment on value.

Adverse factors on the consumer side may continue to drag down LVMH, and the stock has not yet bottomed out, but Wall Street remains optimistic about LVMH and the luxury goods industry.

Morgan Stanley stated that luxury companies, including LVMH, currently have low stock prices and pointed out that the operating profit margin may remain at a "historical high" in the "coming years". Bank of America also has a positive view on the luxury goods industry and believes that investor patience is crucial.

History has shown that, like technology stocks, when there is a major shift in the economic tide, luxury stocks, including LVMH, which rely on capital and interest rate policies, are ready to heat up again.

Some opinions point out that the long-term fundamentals of the stock are still attractive, and the key is how much of the previous increase to historical highs can be given back by the end of the year.