Topline
Burberry, Hugo Boss, Swatch Group and Richemont kicked off the first week of second-quarter earnings for the luxury fashion market with disappointing news for investors ahead of next week’s highly anticipated results from Kering, LVMH and Hermes, as luxury brands struggle to cope with declining sales in Asia.
Bags placed inside a Louis Vuitton store.
Key Facts
Burberry shares plunged more than 16% on Monday, while Hugo Boss shares dropped nearly 7.5% on Tuesday after the companies issued renewed profit warnings for 2024 following second-quarter preliminary earnings showing around 40% plunges in operating profits year-over-year.
Burberry and Hugo Boss have faced significant sales drops in Asia and the Americas, with Burberry’s Asia Pacific and Americas sales both decreasing 23% and Hugo Boss sales dipping around 3% for both geographies, preliminary earnings showed.
A similar story played out in the preliminary earnings of Cartier parent Richemont, which has had a 27% drop in China sales this year, and the Swatch Group—which owns Omega, Tissot, Longines and more—which reported an 11% decline in sales overall this year and significant declines in China sales.
LVMH earnings will come July 23, followed by Gucci Parent Kering and Hermes earnings in the following days.
The S&P 500 Textiles Apparel & Luxury Goods Industry Index has slumped almost 30% year to date.
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Key Background
The luxury sector has largely relied on China—which was responsible for almost 16% of global luxury spending last year—where luxury goods consumption doubled from 2008 to 2014. The world’s second-largest economy fell short of economic growth estimates Monday, slowing to 4.7% GDP growth year-over-year. Plunging land sales, an aging population and diminishing exports—which constituted 36% of the nation’s GDP in 2006 but fell to 20% in 2023—are among some of the issues plaguing the once fastest-growing economy. According to CNN, economists speculate the reason for the economic slowdown may be the “Middle Income Trap”—an economic theory describing high-growth countries in East Asia coming out of poverty that fail to reach high-income status due to dwindling supply of labor, tapering exports and inability to stimulate consumer appetite. Last November, luxury fashion companies like Burberry and Richemont experienced a flood of returns and exchanges during China’s biggest shopping festival, and luxury return rates in China have risen to around 50% this year, far surpassing the luxury industry average of 30%, according to Bloomberg. Last month, Chinese retailers of luxury brands marked down product prices up to 50% to fight the diminishing consumer appetite in China.
Surprising Fact
LVMH was dethroned as Europe’s most valuable company last September as GLP-1 drug Ozempic and Wegovy producer Novo Nordisk overtook the spot with a $424.7 billion market cap. Today, Novo Nordisk is valued at $461 billion, while LVMH is at $375 billion. In the past months, the luxury sector has lost $200 billion in value, with LVMH taking the biggest hit, according to Reuters.
Tangent
Miu Miu was a complete outlier in the industry with 58% growth last year and 90% year-over-year growth in the first quarter, driving parent Prada Group’s sales up 17%. The company’s performance is tied to its ability to resonate with customers in Asia and younger generations who applaud the fashion house’s buzzy pieces, according to Vogue. Miuccia Prada is the current creative director for both Prada and Miu Miu.
Further Reading
$387 Billion Luxury Market Remains Turbulent. Here Are The Bright Spots (Forbes)