Shares in LVMH were observed down about 2% to 3% in premarket trading on Tuesday after the luxury group released second-quarter sales figures that left investors questioning whether a decisive recovery is under way at its most lucrative business line.
At the centre of investor attention was the fashion and leather goods division - the unit that contributes the majority of the group's operating profit. LVMH said that on a currency-adjusted basis this division's quarterly sales rose 1% to 8.90 billion ($10.12 billion). While this marked the segment's first quarterly increase in two years, it fell short of analysts' projections for a 1.7% uptick.
Company commentary pointed to weaker spending in Europe, attributing part of the drag to the impact on tourism from the Iran war. That softer European demand appears to have weighed on market sentiment despite the return to year-on-year growth for the division.
Brokerage RBC highlighted the lingering uncertainty in a note, saying the central question is whether the fashion and leather goods division can still meet full-year targets "despite a tougher comparison in the third quarter," adding that doing so was necessary "for the stock to start working" in its view. The brokerage also observed that "so far, LVMH is still lagging peers, although trends are turning slightly more positive."
For the group as a whole, LVMH reported 3% organic growth in the quarter. That pace of expansion leaves open the question of whether the broader 400-billion luxury sector is definitively emerging from a recent two-year downturn.
Morningstar analysts framed their investment thesis around a sector rebound and the expectation that LVMH s brands would outperform the industry over the long term, stating: "Our thesis for LVMH hinges on the recovery in luxury sector performance and the group's brands overperforming the industry in the long run."
The company results and commentary come against the backdrop of modest top-line improvements in the core fashion business, uneven regional consumption patterns and a near-term calendar that includes a more challenging comparison in the third quarter. ($1 = 0.8798 euros)