LVMH has worst-ever start to a year, dimming outlook for luxury

Shares in LVMH have had their worst start to a year on record, as the impact of war in the Middle East clouds the global economic outlook and intensifies demand headwinds for luxury goods.

The stock fell 28% in the first quarter, the most of any major European luxury firm. The performance was worse than during the global financial crisis of 2008-2009, the Covid-19 pandemic in 2020 and the Dot-com bubble of 2001, a Bloomberg analysis going back to 1989 showed. It also reflects the disruption to travel and tourism on which sales of the priciest items are so dependent.

Investors are looking at the conflict in the Middle East and its “broad implications on cost of living, economic growth and markets,” said Jelena Sokolova, an analyst at Morningstar. “The latter one is an important leading indicator, especially for American consumption of luxury.”

The war has compounded a difficult period for the group, with its downbeat outlook in January poorly received by investors. LVMH in particular tends to be more exposed to so-called aspirational customers who spend less in uncertain times compared to some of its more exclusive competitors. As opposed to other pure luxury rivals, it’s also a big player in wines and spirits — a unit that’s struggled for the past three years, weighed down in particular by a slump in demand for Hennessy Cognac.

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The owner of Tiffany & Co. isn’t alone in seeing a steep drop in valuation, but it’s the largest luxury company by sales and market capitalization and is considered a bellwether for a sector that’s looking to move on from a post-pandemic slump and the impact of US tariffs.

Shares of Richemont, which proved resilient last year thanks to its popular Cartier gold jewelry products, dropped by about 20% in Zurich in the first three months. Hermès International SCA, which makes the coveted Birkin bags, erased close to a quarter of its value during the same period.

The declines in LVMH Moët Hennessy Louis Vuitton SE and other European stock-market heavyweights including drugmaker Novo Nordisk A/S and software firm SAP SE have weighed on the region’s performance this quarter.

LVMH is due to report first-quarter revenue later this month. Its key fashion and leather-goods unit likely posted a 0.65% increase in organic revenue during that period, according to preliminary analysts’ estimates. This division includes its biggest label, Louis Vuitton, as well as Christian Dior Couture.

To be sure, a poor start of the year isn’t necessarily followed by a negative annual performance. In 2020, LVMH ended up gaining 23% overall. But 2008 and 2001 saw shares lose 42% and 35%, respectively.

While LVMH doesn’t break down the performance for the Gulf, Chief Financial Officer Cécile Cabanis said in January that the Middle East was “displaying significant growth.” Prior to the turmoil, LVMH likely generated 6% of revenue there, RBC estimates. LVMH is much more dependent on the US and Asia — including China — where sales were either flat or negative last year.

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The share price collapse also means the net worth of LVMH billionaire CEO Bernard Arnault has fallen by $55.9 billion in the first quarter, according to the Bloomberg Billionaires Index, bringing his total fortune to about $152 billion. As of the close of the Paris market on Tuesday, his loss since the start of the year is the second largest of anyone on the ranking of the 500 richest individuals in the world after Larry Ellison, the founder of Oracle Corp.

During the first quarter, the Arnault family’s stake in LVMH crossed above the symbolic threshold of 50%.

“LVMH has become more than a luxury stock, it’s now a barometer of global confidence,” John Plassard, head of investment strategy at Cité Gestion, said. “The issue is not the Middle East exposure itself, but what it signals: uncertainty, pressure on the wealth effect, and fear of a broader slowdown.”

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