LVMH's weak China sales raise fresh concerns over global luxury market recovery

LVMH's weaker-than-expected quarterly fashion and leather goods sales, hit by a deterioration in Chinese consumer demand for its flagship Louis Vuitton brand, have raised fresh doubts about the luxury industry's recovery prospects.

Four sell-side analysts have cut their target price on LVMH shares by an average 9% following the results, the first quarterly report by a major sector player, expecting the miss to also signal weak performance at some of its competitors.

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LVMH shares were down 1.5% by 0730 GMT. Its peers Hermes , Kering and Richemont were down by a similar degree.

Europe's leading luxury groups, mired in a three-year slowdown, have lost around €330 billion in market value since the start of the year, with LVMH alone shedding roughly 40%.

"Despite the recent share price weakness, we expect some further pressure on the space as a whole today, with confirmation that the Chinese cluster seems to have taken a material (and bigger than feared) step down", JPMorgan analysts said in a note to clients.

RECOVERY TO TAKE TIME, CFO SAYS

LVMH on Monday posted a 5% drop in organic sales at its fashion and leather goods division, which generates nearly half of group revenue, missing expectations in a Visible Alpha consensus for a 1.8% decline.

The group said a "less buoyant environment" in China impacted its revenues, contributing to 1% organic sales growth overall, excluding currency swings, to €18.5 billion ($20.68 billion), below expectations for 1.3% growth.

Asked about Louis Vuitton's recovery prospects in a call with analysts, the group's Chief Financial Officer Cecile Cabanis said: "It takes a bit of time, but I don't think there are a lot of shortcuts here".

Adding to investor concerns, growth in LVMH's watches and jewellery division, home to brands including Bulgari and Tiffany, slowed to 6% from 9% in the first half of the year, marking a changing trend in one of luxury's few bright spots.