LVMH Sales to Test Luxury Investors’ Nerves After Tariff Pain

Europe’s luxury-goods stocks have had a turbulent start to the year, giving investors plenty to consider heading into first-quarter results from sector bellwether LVMH.

The January rally in luxury shares is now a distant memory, as President Donald Trump’s trade war threatens to escalate a violent equity selloff and inflict more pain on Europe’s makers of finer things. A luxury stocks index compiled by Goldman Sachs Group Inc. has shed more than $200 billion from its February peak, and hopes are evaporating that Chinese stimulus can spark a lasting rebound.

Against this deteriorating backdrop, analysts have been swiftly lowering earnings expectations. For LVMH, which is due to report earnings after the close on Monday, Barclays Plc analyst Carole Madjo expects its all-important fashion and leather-goods division to post another quarter of declines due to a slowdown in the US market. Investor attention on the conference call will likely be on tariffs, the US market and margin prospects at the division, Madjo added.

The upcoming season comes after mixed results over the fourth quarter. LVMH’s decline in sales was a notable disappointment, though Hermès and Richemont were bright spots. The sector, whose importance to Europe’s stock market is akin to the “Magnificent Seven” tech megacaps in the US, saw another blow along the way as LVMH lost its crown as Europe’s most valuable stock. It’s slipped into second place, behind German software maker SAP SE.

Now, as Trump’s tariffs threaten to upend global supply chains and hit the economy, hopes have all but vanished that luxury-goods firms can rely on US customers to make up for China’s slowdown.

The tariffs — which include effective 145 percent duties on Chinese goods and a recently-lowered 10 percent rate on the European Union — have roiled risky assets and plunged European equities into a correction. Goldman’s luxury basket is down 12 percent on the year, on track for its worst yearly performance since 2018. At its peak in February, the basket was up 20 percent year-to-date.

“It might get worse before it gets better in so far as the year shapes up,” Morningstar analyst Jelena Sokolova said. “People are in this uncertain environment and could just delay purchases because they don’t know what’s going to happen tomorrow.”

The levies themselves aren’t expected to directly impact luxury-goods makers, whose affluent customers are typically better able to stomach price increases. What changes the equation is the wealth destruction underway in America as equities tank.

Just as outsized market gains of recent years buttressed Americans’ sense of prosperity, the ongoing wealth declines could brake spending on pricey items.

“Consumers don’t buy luxury because they are wealthy, they do because they are confident about the future,” Erwan Rambourg at HSBC Holdings Plc wrote. “We are expecting, quite literally, fewer champagne bottles to be popped this year.

Deutsche Bank AG analyst Adam Cochrane agrees that the stock selloff will likely postpone a luxury demand recovery. The earnings season should see companies hinting at price hikes in the US, while steering clear from providing guidance for the rest of this year, he expects.

One mitigating factor could be stock valuations. While luxury shares tend to carry a premium to the broader market, Zuzanna Pusz, an analyst at UBS Group AG, notes they are now well below their 15-year average versus the market.

Still, most market-watchers have been cutting forecasts. HSBC no longer expects any growth for the sector in 2025, compared with a previous projection of a 5 percent expansion. Bernstein analysts are even more pessimistic, predicting the industry to contract by 2 percent globally, versus a previous estimate for 5 percent growth.

Flavio Cereda, a portfolio manager at GAM UK Ltd., now expects near zero growth for the sector this year, having predicted 4 percent expansion as recently as February. While hoping to glean some clarity from companies’ earnings calls, he is prepared to be disappointed.

“How can you make a comment on the tariff impact when you have no idea where the tariffs are going to be in three months time? You can’t,” Cereda said.

Learn more:

Join Our Executive Roundtable: Fashion in the Trump Era

Executive Members are invited to join senior correspondents Marc Bain and Sheena Butler-Young, along with executive editor Brian Baskin for an informal breakfast discussing tariffs, the future of DEI and other topics.