Luxury goods stocks tumble as Deutsche Bank says they're no longer a slam dunk. Blame the U.S.

By Barbara Kollmeyer

Hermès, LVMH have 'greater resonance' among younger, more affluent consumer, says Deutsche Bank analyst

The world's richest man might want to listen to what Deutsche Bank had to say about luxury goods profits on Tuesday: the U.S. consumer is turning into a problem.

"Key drivers of the strong sales performance have been the robust rebound in domestic China demand and more resilient growth in Europe (both from locals and tourism). However, slowing to negative growth yoy [year over year] in the U.S. is a building concern, especially given signs of softening demand from more economically sensitive aspirational consumers," said Deutsche Bank analyst Matt Garland, in a note to clients.

The sector has been a sweet spot for investors this year, with LVMH becoming the first European company to hit a $500 billion market cap last month. The Stoxx Europe Luxury 10 group is up 53% so far this year, with only the Stoxx 600 Travel and Leisure sector anywhere close, up 28%.

Shares of LVMH Moët Hennessy Louis Vuitton fell 3.5% in European trading on Tuesday. The Bulgari and Dior owner's chairman and CEO is Bernard Arnault, whose wealth pile has increased by over $40.7 billion this year to $203 billion, making him the world's richest, according to the Bloomberg Billionaire Index.

Read: Who is Bernard Arnault, the world's richest person with a $210 billion fortune?

The biggest losses were seen for Hermès International , down 5.6% and Moncler off 4.6%, while Swatch Group was down 3.6%, Cie. Financière Richemont fell 3.2%, Gucci owner Kering fell 2.7% and Salvatore Ferragamo slipped nearly 2%.

Deutsche Bank's Garland raised his target prices on Richemont to CHF180 from CHF165 and on Moncler to EUR75 from EUR69, while cutting Swatch Group to CH365 from CHF370.

He said the strongest performing names -- Hermès, Moncler, LVMH and Richemont "have been able to evidence strong execution on domestic China demand and a greater resonance with younger and affluent consumers globally." Hermès shares have gained 82% this year, while Richemont is up 60%, followed by a 49% gain for LVMH and a 45% rise for Moncler.

But underperformers such as Ferragamo and Kering are "suffering from the impact of creative turnarounds and greater exposure to more aspirational luxury consumers," notably in the U.S. Non China sales growth has been driven by price and a price mix, he said.

-Barbara Kollmeyer

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05-23-23 1037ET

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