by Mimosa Spencer
PARIS (Reuters) – French luxury giants LVMH, Kering and Hermès are expected to post double-digit sales growth in the third quarter, still driven by strong demand for high-end items despite rising prices.
Thanks to its affluent clientele, the luxury sector has in recent months managed to overcome the obstacles posed by health restrictions in China, rising costs and market turbulence as affordable clothing brands warn against a slowdown in demand.
Investors will be watching as corporate earnings releases for any signs that consumer appetite for high-end may be waning after the post-lockdown frenzy.
“Resilience will be tested from the fourth quarter of this year,” said Aurélie Husson-Dumoutier at HSBC.
Slowing economic growth and declining consumer confidence and credit card spending in the United States paint a “cautious” picture of the consumer as the holiday season approaches, warned Thomas Chauvet, analyst at Citi.
Price increases, intended to protect margins, will also be monitored.
The historical trend shows that major luxury brands like Louis Vuitton have raised their selling prices by around 2.5 times the rate of inflation, says UBS, which forecasts further price increases of around 5% (“mid -single digits”) next year against a global inflation forecast of around 4%.
The Swiss bank estimates that prices in the sector rose by an average of 4.6% between January and July.
Activity in China is expected to have rebounded significantly from the second quarter as lockdown disruptions eased, but uncertainty remains.
“China is a country where companies are seeing high volatility, which makes it difficult to extrapolate trends from month to month,” noted Luca Solca at Bernstein.
For UBS analyst Zuzanna Pusz, LVMH, the world leader in the sector, should have recorded organic revenue growth of 21% over the July-September period, with a favorable exchange rate effect. A Visible Alpha consensus quoted by the bank gives organic sales growth of 13%.
Zuzanna Pusz forecasts organic growth of 13% for Kering and 15% at constant rate for Hermès over the period.
LVMH publishes its quarterly results on Tuesday. Those from Kering and Hermès are expected on October 20.
(Mimosa Spencer report, French version Laetitia Volga, edited by Kate Entringer)
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