LVMH: Riding the Wave of Luxury's
Resurgence Amidst the Pandemic and
Beyond
Investment Recommendation
BUY
The COVID-19 pandemic brought about widespread unemployment and
economic hardships for many across the globe, but it also witnessed a surge
in the popularity of luxury goods. The years 2021 and 2022 were recordbreaking years for the luxury industry, with sales soaring like never before.
People indulged in designer handbags, limited-edition sneakers, classic
watches, and highly coveted beauty products that gained viral fame on
platforms like TikTok.
Likewise, the value of luxury companies reached unprecedented heights
during this time, as Moët Hennessy Louis Vuitton (LVMH) emerged as the
world's most valuable luxury company, recently surpassing a market cap of
half a trillion dollars and becoming the first European company to do so as
economies across the world submerged from the pandemic and China eased
its zero-covid lockdown policy.
While the luxury sector thrived, other industries faced difficulties recovering
from the pandemic's impact, grappling with supply chain issues, labor
shortages, and plummeting stock values. Revenues and profits for most
luxury brands swelled in 2022, with Hermès, Richemont, Kering, Chanel, and
others experiencing significant increases. The luxury industry exhibited
resilience, standing strong amidst economic headwinds and attracting not
only the wealthy but also middle- and low-income consumers.
The demand for premium products has not only transcended wealth
boundaries, but age boundaries as well. Millennials and Gen-Z comprise a
significant portion of luxury consumers and are projected to drive 80 percent
of luxury spending by 2030 as luxury goods have become deeply embedded
in pop culture and internet culture, with the internet serving as a platform
for discovering trends, making purchases, and engaging in resale activities.
The global luxury goods market is poised for significant growth, with a
projected increase from US$349.1 billion in 2022 to US$419 billion by 2027,
representing a compound annual growth rate (CAGR) of 3.7%. This growth
will be primarily driven by the growing demand for a wide range of luxury
products, including bags, handbags, and clothing, as consumers seek to
enhance their overall presentation and "status", and the younger
generation's increasing preference for premium perfumes and cosmetics to
improve their appearance and boost self-confidence is expected to further
propel market growth.
To gain exposure to this market, taking a bet on the strongest player may be
the wisest choice. LVMH's strong brand portfolio, resilience in the luxury
market, global reach, focus on innovation, solid financial performance,
commitment to sustainability, and an excellent management team make it an
attractive investment opportunity for those looking to capitalise on the longterm growth potential of the luxury goods industry.
Company data
Price: €823,80
Date of price: 30/05/2023
52-week range: €535-€ 904.60
Market Cap: €419.7b
Fiscal Year End: Dec
Shares O/S: 502m
Price Target: €1 014.56
LVMH Overview
LVMH is a global luxury goods conglomerate that operates an extensive
portfolio of prestigious brands. Founded in 1987 through the merger of two
prominent French companies, Louis Vuitton and Moët Hennessy, LVMH has
since grown to become a leader in the luxury industry.
As the world's largest luxury group, LVMH encompasses a diverse range of
businesses, including fashion and leather goods, wines and spirits, watches
and jewelry, perfumes and cosmetics, and selective retailing. The company's
brand portfolio features renowned names that resonate with elegance,
craftsmanship, and exclusivity.
LVMH's fashion and leather goods division includes iconic brands like Louis
Vuitton, Dior, Fendi, Givenchy, and Celine, each known for their exceptional
craftsmanship, innovative design, and timeless appeal. In the wines and
spirits sector, LVMH boasts legendary labels such as Moët & Chandon, Dom
Pérignon, Veuve Clicquot, Hennessy, and Krug, renowned for their
exceptional quality and heritage.
The luxury conglomerate's commitment to excellence extends to its watch
and jewelry brands, which include TAG Heuer, Hublot, Bulgari, and Zenith,
known for their precision, innovation, and exquisite craftsmanship. LVMH
also holds a strong presence in the perfumes and cosmetics industry, with
brands such as Christian Dior, Guerlain, Givenchy, Fenty, and Benefit
Cosmetics, offering a wide range of luxurious and innovative beauty
products.
In addition to its brand holdings, LVMH operates a network of selective retail
stores, including the prestigious department store Le Bon Marché, Sephora,
and DFS (Duty Free Stores). These retail outlets provide customers with an
immersive luxury shopping experience and offer a curated selection of the
finest products across different categories.
Ownership structure
LVMH's business model emphasizes a combination of brand ownership,
vertical integration, and global distribution networks. The company
focuses on nurturing and
developing its brands while
leveraging synergies and
economies of scale across its
diverse business segments. By
maintaining the highest standards
of quality, craftsmanship, and
exclusivity, LVMH aims to provide
exceptional luxury experiences and
meet the evolving demands of
discerning consumers worldwide.
Segment Revenue Growth (€'billion)
In 2022, the largest share of LVMH's revenues came from the Fashion and
Leather Goods segment, accounting for nearly half of the total revenues. The 45000
next significant contributors were the Selective Retailing, Watches and 40000
35000
Jewelry, Perfumes and Cosmetics, and Wine and Spirits segments. Among 30000
25000
these, the Fashion and Leather Goods segment exhibited the strongest profit 20000
15000
margins, followed by the Wine and Spirits and Watches and Jewelry 10000
5000
segments.
0
LVMH generates revenue globally, with a strong focus on the Asia-Pacific
region, particularly China, which has been a key growth driver. The rising
middle class and their increasing demand for luxury goods have contributed
to LVMH's success in this region. The company has expanded its presence in
China, catering to the preferences of Chinese consumers. Europe, especially
Western Europe, is another significant revenue contributor, with France as
the company's home base. Countries like
-5000
2018
2019
2020
2021
2022
Italy, the United Kingdom, Germany, and Spain also contribute to LVMH's
Segment profits from recurring operations (€'billion)
European revenue. The United States, with its large consumer base and high
18000
spending power, represents a substantial portion of LVMH's revenue. Other
16000
regions, including the Middle East, Latin America, and emerging markets, also
14000
contribute, albeit to a lesser extent compared to Europe, North America, and
12000
Asia-Pacific.
10000
8000
SWOT Analysis
6000
4000
Strengths
2000
0
-2000
Strong Brand Portfolio: LVMH owns a diverse portfolio of prestigious and
internationally recognized luxury brands across multiple sectors, including
fashion, perfumes, cosmetics, watches, jewelry, and wines and spirits. This
extensive brand portfolio contributes to its global market presence and
customer loyalty.
Market Leadership: LVMH is a market leader in the luxury goods industry,
with a strong market position and a track record of consistent growth. Its
brands are often synonymous with luxury, craftsmanship, and innovation,
enabling the company to command premium prices and attract affluent
customers.
Innovation and Creativity: LVMH places a strong emphasis on innovation and
creativity in its product offerings, design, and marketing strategies. The
company constantly seeks to push boundaries and introduce new concepts,
collaborations, and limited editions to maintain its competitive edge and
captivate consumers.
Fashion
and
leather
goods
Watches Perfumes Wines and Selective
and
and
spirits
retailing
jewellery cosmetics
2018
2019
2020
2021
2022
Number of stores
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Vertical Integration: LVMH has a well-established vertically integrated
business model. By owning and controlling various stages of the value chain,
including production, distribution, and retail, the company has greater
control over quality, exclusivity, and customer experience.
2020
2021
2022
Revenue per store
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
Asia (excl. United
Japan)
States
2020
Europe
(excl.
France)
France
2021
2022
Japan
Other
countries
Weaknesses:
Exposure to Economic Conditions: The luxury goods industry is sensitive to
changes in economic conditions. During economic downturns, consumer
spending on luxury items may decline, impacting LVMH's sales and
profitability.
Overreliance on Fashion and Leather Goods: While LVMH has a diverse
portfolio, it heavily depends on its fashion and leather goods segment, which
contributes a significant portion of its revenue. Any downturn in this segment
could have a significant impact on the company's overall performance.
Opportunities:
Expanding Emerging Markets: LVMH has opportunities to tap into the
growing consumer markets in emerging economies, such as China, India, and
Southeast Asia. Rising disposable incomes, changing consumer preferences,
and increasing brand awareness provide avenues for revenue growth in these
regions.
Digital Transformation: The increasing shift towards online shopping and
digital platforms presents opportunities for LVMH to enhance its e-commerce
presence and engage with customers through digital channels. Investing in
digital marketing, online retailing, and personalized customer experiences can
drive sales and strengthen customer relationships.
Sustainable and Ethical Practices: The demand for sustainable and ethical
products is on the rise. LVMH can capitalize on this trend by further
integrating sustainable practices, responsible sourcing, and environmentally
friendly initiatives across its brands, appealing to environmentally conscious
consumers.
Threats:
Intense Competition: The luxury goods industry is highly competitive, with
several established players vying for market share. Competitors with strong
brand recognition, extensive product offerings, and substantial financial
resources pose a threat to LVMH's market position.
Counterfeit Products: The luxury goods industry is prone to counterfeit
products, which can negatively impact brand reputation and revenues. LVMH
faces the ongoing challenge of combating counterfeits and protecting its
brands from infringement.
Geopolitical and Trade Uncertainties: Global political and trade uncertainties,
such as trade disputes, tariffs, and regulatory changes, can affect LVMH's
international operations, supply chain, and profitability. Fluctuations in
exchange rates and geopolitical tensions may also impact consumer demand
in certain regions.
Industry overview
Fashion and Leather goods
The luxury fashion and leather goods industry represent a significant segment
within the broader luxury goods sector. It encompasses prestigious fashion
houses and renowned brands that specialize in high-quality clothing,
accessories, handbags, shoes, and leather goods. The industry represents
encompasses prestigious fashion houses and renowned brands that
specialize in high-quality clothing, accessories, handbags, shoes, and leather
goods that are often handmade by skilled artisans, ensuring impeccable
quality, durability, and exclusivity. The leaders in the industry include Louis
Vuitton (LVMH brand), Gucci, Chanel, Hermès, Prada, Dior (LVMH), Fendi
(LVMH), and Givenchy, which have rich histories and iconic status. They have
cultivated a distinct brand identity and storytelling that resonates with
consumers seeking aspirational and prestigious products.
Luxury fashion and leather goods are distributed through a mix of channels,
including flagship stores, high-end department stores, specialty boutiques,
and e-commerce platforms. Flagship stores, often located in prestigious
shopping districts, provide immersive brand experiences and personalized
services, while e-commerce platforms enable brands to reach a broader
global audience.
According to Statista, revenue in the Luxury Fashion industry is projected to
reach US$111.50 billion in 2023 and is anticipated to grow at a compound
annual growth rate (CAGR) of 3.39% from 2023 to 2028, while revenue for
the Luxury Leather industry is projected to reach US$75.79 billion 2023 and
grow at a CAGR of 4.03% from 2023 to 2028.
In 2021 and 2022, LVMH experienced significant organic revenue growth in
its fashion and leather goods segment, with a notable increase of 47% and
20% respectively. This growth was fueled by pent-up demand resulting from
the pandemic-induced lockdowns. Additionally, the first quarter of 2023
witnessed a remarkable 18% increase in organic revenue growth, highlighting
the strength of demand as Chinese consumers emerged from the strictest
lockdown measures implemented worldwide. Profits from recurring
operations for this segment during these periods experienced substantial
growth, with an impressive increase of 79% and 22% respectively. The profit
margins also remained strong, standing at 42% and 41% respectively.
Watches and Jewellery
The luxury watches and jewelry industry represents a prestigious and highly
specialized sector within the broader luxury goods market. The luxury watch
industry encompasses renowned brands such as Rolex, Patek Philippe,
Omega, TAG Heuer (LVMH), Audemars Piguet, and Jaeger-LeCoultre are
revered for their technical expertise, heritage, and iconic timepieces. Luxury
watches often feature complex movements, precious materials, and limited
editions that appeal to collectors and enthusiasts.
Luxury jewelry encompasses a wide range of exquisite pieces, including rings,
necklaces, bracelets, earrings, and brooches. Brands such as Cartier, Tiffany
& Co(LVMH)., Bulgari, Chopard, Van Cleef & Arpels, and Harry Winston are
renowned for their exceptional craftsmanship, gemstones, and innovative
designs continually strive for design
excellence and innovation, pushing
the boundaries of creativity and
technical mastery.
These goods are distributed through
a combination of channels,
including authorized retailers, brand
boutiques, department stores, and
e-commerce platforms. Brand
boutiques offer a personalized and
immersive shopping experience,
while authorized retailers provide a
wide selection of luxury timepieces
and jewelry. E-commerce platforms
enable brands to reach a broader
global
audience
and
offer
convenient
online
shopping
experiences.
According to Statista, global
revenue in the Luxury Watches &
Jewelry industry is estimated to be
US$74.97 billion in 2023. The
market is projected to experience at
a CAGR of 2.50% during the period
from 2023 to 2028.
In 2021 and 2022, LVMH's Watches
and Jewelry segment achieved
organic revenue growth of 40% and
12% respectively. These growth
rates were compared to a low base
resulting from the impact of the
pandemic. The segment's revenues
remained robust in the first quarter
of 2023, experiencing organic
growth of 11%. Furthermore, profits
from recurring operations saw
significant increases, with a
staggering 456% growth in 2021 and
a 20% increase in 2022. The
segment achieved a profit margin of
19%.
Perfumes and Cosmetics
The luxury perfumes and cosmetics
industry represents a distinct and
glamorous sector within the
broader beauty and personal care
market. It encompasses prestigious
brands that create and market highquality
fragrances,
skincare,
makeup, and other luxury beauty
products such as Chanel, Dior
(LVMH), Guerlain, Hermès, Tom Ford, and Creed in luxury perfumes and La
Mer, La Prairie, Sisley, Fenty (LVMH), Estée Lauder, Lancôme, Yves Saint
Laurent, and Charlotte Tilbury in cosmetics. The demand for luxury beauty
products remains robust, driven by factors such as changing consumer
preferences, increasing disposable incomes, and the desire for indulgence,
self-care, and enhancing personal appearance.
Luxury perfumes and cosmetics are distributed through a combination of
channels, including high-end department stores, luxury beauty boutiques,
brand-owned flagship stores, and e-commerce platforms.
Revenue in the Luxury Cosmetics & Fragrances segment is projected to reach
US$71.31 billion in 2023 according to Statista and is anticipated to witness a
CAGR of 4.00% during the period from 2023 to 2028.
In 2021 and 2022, LVMH's Perfumes and Cosmetics segment experienced
organic revenue growth of 27% and 10% respectively. The positive revenue
trend continued in the first quarter of 2023 with organic growth reaching 7%.
During these periods, the profit margins remained steady at 10% and 9%
respectively.
Wines and Spirits
The luxury wines and spirits encompasses premium and high-end brands that
produce and distribute a wide range of luxury alcoholic beverages, including
wines, champagnes, spirits, and liqueurs. Brands such as Moët & Chandon,
Dom Pérignon, Hennessy (LVMH), Glenmorangie (LVMH), Johnnie Walker,
Grey Goose, and Bacardi represent the epitome of luxury and are
synonymous with superior quality and exclusivity.
Luxury wines are often linked to specific regions and vineyards renowned for
their terroir, which includes factors such as climate, soil, and topography that
influence the characteristics of the grapes and the resulting wines. The
concept of terroir adds value and uniqueness to luxury wines, with
appellations and designations indicating the origin and quality of the wines.
Luxury wines and spirits are distributed through a combination of channels,
including high-end wine and spirits retailers, specialized boutiques, luxury
hotels and restaurants, duty-free shops, and online platforms.
According to Statista, the revenue in the Wine market is estimated to be
US$333.00 billion in 2023. The market is projected to grow at an annual rate
of 5.52% (CAGR 2023-2027). Similarly, the revenue in the Spirits market is
expected to amount to US$525.30 billion in 2023, with an anticipated annual
growth rate of 4.56% (CAGR 2023-2027).
In 2021 and 2022, LVMH's Wines and Spirits segment achieved organic
revenue growth of 26% and 11% respectively. Additionally, profits from
recurring operations increased by 34% and 16% with profit margins of 31%
and 30% respectively. However, in the first quarter of 2023, the segment
experienced a slight decline in revenues, with organic growth reaching 3%.
Selective retailing
The luxury selective retailing industry represents a specialized segment
within the luxury goods market. It involves the distribution and retailing of a
wide range of luxury products, including fashion, accessories, cosmetics,
fragrances, watches, jewelry, and more. Luxury selective retailers curate a
unique
shopping
experience,
providing a platform for prestigious
brands and catering to affluent
consumers seeking personalized
service and exclusivity.
Luxury selective retailing is
prominent in the travel retail sector,
with luxury products available at
airports, duty-free shops, and luxury
shopping areas within hotels and
resorts. Examples include Bergdorf
Goodman, Harrods, Selfridges, Saks
Fifth Avenue, Galeries Lafayette,
and Lane Crawford
In 2021 and 2022, LVMH's Selective
Retailing segment achieved organic
revenue growth of 18% and 17%
respectively. In the first quarter of
2023, the segment experienced
strong revenue growth with organic
growth reaching 28%. The profit
margins for this segment remained
steady at 5% in both 2021 and
2022.
Ratio analysis:
Ratios
Return on Capital Employed:
LVMH
Hermes
Kering
Richemont
Prada
Burberry
Salvatore
Ferragamo
Diageo
Liquidity
Current ratio
1,26
3,94
1,4
2,5
1,6
2,53
2
1,53
Quick ratio
0,62
3,35
0,85
1,89
1,12
2
1,35
0,69
Debt to assets
26
0,11
0,33
0,38
0,36
0,38
0,35
0,45
Debt to equity
35%
0,15
0,8
0,83
0,77
0,87
0,8
2,12
Inventory turnover
1,36
2,04
1,28
0,95
1,25
1,92
0,34
7,32
Cash conversion cycle
116
129
167
294
163
159
143
324
Gross profit margin
68%
71%
75%
69%
79%
70,11%
72%
61%
Operating profit margin
27%
42%
27%
26%
18%
17%
9%
29%
Return on equity
Return on capital
employed
25%
31%
28%
15%
14%
29%
9%
42%
20%
35%
22%
18%
13%
19%
9%
17%
13,28%
58%
15%
20%
9%
19%
6%
11%
Leverage ratios
Activity ratios
Profitability ratios
Return on invested capital
Ratio analysis:
Inventory Turnover:
LVMH's inventory turnover has been relatively stable over the past three
years, indicating the efficiency of the company in managing its inventory. A
higher inventory turnover ratio suggests that LVMH is selling its inventory
more frequently, which is generally considered positive as it helps minimize
holding costs, maintain exclusivity, respond to market trends, manage
working capital effectively, and mitigate risks associated with slow-moving
inventory.
Gross Profit Margin and Operating Profit Margin:
LVMH's gross profit margin and operating profit margin has been relatively
consistent, with a slight increase in 2022 compared to previous years,
however, they are both below the industry average of 72%, as it has exposure
to comparatively lower margins through perfumes, cosmetics and selective
retailing.
Return on Equity
LVMH's return on equity (ROE) has shown a significant improvement from
2020 to 2021, indicating a higher return generated for the shareholders'
investment. The ROE of 25% in 2022 and 33% in 2021 indicates that LVMH
has been successful in generating profit for its shareholders. It is also above
the industry average of 22%, suggesting that LVMH is utilising its
shareholders' equity more efficiently than its industry peers.
LVMH's return on capital employed
(ROCE) has been consistently above
10% over the past three years,
indicating effective utilization of
capital to generate profits. The
ROCE of 20% in 2022 and 18% in
2021 suggests that LVMH has been
successful in generating returns for
its invested capital. It is also above
the industry average of 19%,
indicating relatively better capital
efficiency compared to its industry
peers.
Valuation
Intrinsic valuation
Revenue
Fundamentals:
To forecast revenues, I have
analyzed
each
segment
by
considering organic growth rates
and foreign exchange impacts. For
organic growth assumptions, I took
into account the revenue growth in
the first quarter of 2023,
management guidance, and applied
a sales growth damping factor. To
project foreign exchange impacts, I
assumed a weakening of the euro
for the rest of 2023 into 2024,
followed by stabilization in the
subsequent years.
2022A
2023E
2024E
2025E
2026E
2027E
Revenue
€79,184
€89,468
€96,739
€101,59
€101,74
€101,99
Gross Profit
€54,196
€61,235
€66,211
€69,535
€69,631
€69,803
Net income
€14,085
€15,687
€17,029
€17,947
€18,377
€18,378
CAGR
Revenue
5,19%
Gross Profit
5,19%
Net Income
5.47%
Discounted Cash Flow
Cost
of
revenue,
capital
expenditures and working capital
DCF
Entry 2023
Date
31/05/2023
Time
Periods
Year
Fraction
EBIT
Less:
Cash
Taxes
Plus:
D&A
Less:
Capex
Less:
Changes
in NWC
Unlevere
d FCF
(Entry)/E
xit
Transacti
on CF
Transacti
on CF
Intrinsic
Value
Enterpris
e Value
Plus:
Cash
Less:
Debt
Equity
Value
2024
2025
2026
31/12/2023 31/12/2024 31/12/2025
0
1
0.5
Exit
31/12/2026 31/12/2027 31/12/2027
2
1.0
2027
3
1.
4
1.0
1.0
8
0
00
0
0
22,459,832,5 24,473,299,5 25,855,383,61 26,315,179,7 26,503,923,4
39
64
0
02
26
6,258,294,10 6,872,106,77
9
4
7,291,889,106
6,052,194,58 6,653,068,20
7
9
7,238,647,601
7,166,222,35 7,248,123,33
4
3
7,702,636,73 8,114,506,45
3
9
3578743674 3869578264 4063829924
4464758972 4079522301
4,391,083,01
1,573,904,37 1
918,587,795 2,438,212,548 3
736,705,353
14,283,906, 19,466,094,
19,300,099, 20,812,930, 24,027,489,
332
940
633
736
604
(427,532,617,
120)
668,295,693,
730
8,332,278, 19,466,094,
19,300,099, 20,812,930, 24,027,489, 668,295,693,
694
940
633
736
604
730
(427,532,617, 8,332,278, 19,466,094,
19,300,099, 20,812,930, 24,027,489, 668,295,693,
120)
694
940
633
736
604
730
Market Value
521,796,794,
791
7,300,000,
000
19,739,000,
000
509,357,794,
791
Equity
Value/Sha
re
56
1,014.
Less: Cash
Enterprise
Value
415,093,617,
120
19,739,000,
000
7,300,000,
000
427,532,617,
120
Equity
Value/Share
80
Market Cap
Plus: Debt
826.
To estimate the costs of revenue, I
analyzed the historical relationship
between cost of revenues and
revenue. By calculating the
historical average of cost of
revenues over the past five years, I
obtained a reliable indicator to
project future costs in relation to
revenue. I did the same for capital
expenditures and net working
capital items.
Depreciation and amortisation
To estimate the depreciation and
amortization expense, I relied on
the historical proportion of this
expense to the net opening
balances. This approach was chosen
due to a strong correlation observed
in the past, allowing for a reliable
projection of depreciation and
amortization expenses in relation to
the net opening balances.
Other investment activities and
other non-cash adjustments
Considering the uncertainty and
difficulty in forecasting various
variables
involved
in
other
investment activities, such as
business acquisitions and proceeds
from the purchase of short-term
marketable securities, I assumed a
moving historical average level of investment for future periods.
Dividend policy
To estimate the dividend payout ratio, I analyzed the historical data and
calculated the average payout ratio over a certain period. I then applied this
historical average to my forecast to project the future dividend payments.
Opportunities
The economic and psychological factors that contribute to the strength of the
luxury market are substantial. From an economic standpoint, the industry
showcases resilience thanks to its affluent customer base, who are less
influenced by high price tags. The psychology of purchasing designer
products revolves around the status they represent. Luxury goods serve as
symbols of wealth and exclusivity, and the higher the price, the greater the
perceived status they convey.
Younger generations have adopted a different perspective on luxury
spending, leveraging the resale market and placing more emphasis on
emotional fulfillment rather than traditional wealth signaling. Bain & Co
research indicates that Gen Z members are making their initial luxury
purchases at a younger age, around 15, surpassing the age at which
millennials made their first luxury buys. This trend presents an opportunity
for luxury brands to establish long-term consumer relationships. Looking
ahead, Gen Z and Gen Alpha's spending is projected to grow three times
faster than other generations until 2030, eventually comprising a significant
one-third of the market.
Adoption of digital technologies: Brands can leverage digital technologies like
artificial intelligence (AI), virtual and augmented reality (VR/AR), and 3D
printing to enhance the customer experience both online and in physical
stores. These technologies can provide personalized interactions, improve
marketing efforts, and create intricate and unique luxury products.
Investment Risks
Slowdown in the US luxury market: The US market, which has been a
significant driver of luxury fortunes in recent years, is showing signs of
slowing down. This is evident from weak credit-card spending and reports of
declining sales in luxury brands such as Burberry. The slowdown raises
concerns about the future performance of luxury brands in the US market.
Uncertainty in China's recovery: Luxury brands have heavily relied on China's
post-Covid recovery to drive sales. However, there are indications that
Chinese consumers remain cautious, and there is a need for largescale group
tours to Europe to sustain Chinese consumption. Any faltering in the Chinese
recovery story could pose a setback for luxury stocks.
Dependency on economic and market factors: Luxury stocks' future
performance relies on a perfect scenario where the US market decelerates
while China maintains robust growth. The economic and market conditions,
including factors such as stimulus payments, stock market performance, and
cryptocurrency gains, play a crucial role in sustaining luxury spending and
driving the performance of luxury companies.