PARIS (Reuters) – Europe’s luxury companies, from LVMH to Hermes and L’Oréal, are tentatively pointing to signs of a recovery in China, but are also cautious about announcing a recovery in one of their biggest markets after two years of recession.
The $400 billion luxury sector has been hit hard by the slowdown in China, which accounts for about a third of global luxury sales.
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Now there are signs that the worst may be over, although China’s problems continue, with economic growth likely to have slowed to the lowest level in a year in the third quarter as a prolonged slowdown in the housing market and trade tensions have hit demand.
LVMH’s positive sales performance last week fueled an $80 billion rally in luxury stocks on optimism over China’s recovery, but luxury companies reporting results this week presented a mixed picture.
“I’m always very careful about China because one quarter doesn’t create a trend. But overall the market has moved into positive territory,” L’Oréal Chief Executive Nicolas Hieronimus said after the company reported its first growth in China in two years, although it missed sales forecasts, sending its shares down about 6% on Wednesday.
French luxury goods group Hermes signaled a “slight improvement” in China, but its third-quarter sales were below expectations, causing shares to fall 4%.
Eric du Halgouet, executive vice-president of finance, told analysts that the important October Golden Week holiday in mainland China saw “more dynamic activity”.
LVMH has been the most bullish company to date on China. Shares in the luxury group had their best day in more than two decades last week following signs of improving demand in mainland China, where sales turned positive for the first time this year.
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Shares in Hermes, Gucci owner Kering, Richemont, Burberry and Moncler are rising in value as investors bet the sector’s two-year downturn is coming to an end.
(Reporting by Mimosa Spencer, Tassilo Hummel and Dominique Patton)
