By By Andrea Figueras
As the luxury sector in Europe prepares to release their company updates, analysts predict a slowdown in sales growth. Following the exceptional growth seen after the pandemic, the industry is now facing a period of normalization, with a softer-than-expected recovery in China. Here are the key details to watch out for ahead of earnings season:
Diminished Demand
Barclays analysts have noted that the luxury-goods industry is entering a phase of normalization, which they expect to fully materialize by 2024. Recently, Goldman Sachs revised down its 2024 global industry growth outlook from 8% to 6%, with a focus on the second half of the year. Jefferies analysts stated in a note to clients that the upcoming reporting season is likely to highlight the risk of another year of U.S. normalization, ongoing weakness in Europe, and limited spending boost from Chinese consumers.
Damped Chinese Spending
Chinese consumers, one of the largest customer groups for the luxury sector, have shown signs of slowing luxury demand. UBS analysts attribute this to weakening domestic and travel spending. Despite the easing of lockdowns after the Covid-19 pandemic, China has experienced a slower-than-expected recovery due to domestic economic challenges. This, combined with a limited upturn in travel to Europe and North America, has resulted in lower expectations for spending growth among Chinese customers, according to Jefferies analysts.
Restrained Margins
Barclays analysts anticipate little room for margin expansion in 2024 for luxury companies. They suggest that most companies may only achieve flat margins at best. Companies undergoing turnaround efforts, such as Kering and Salvatore Ferragamo, may face even more risk of margin contraction as they strive to maintain brand investments in an increasingly competitive environment.
Scheduled Reporting Dates
- TOD’s: Jan. 24
- LVMH Moet Hennessy Louis Vuitton: Jan. 25
- Salvatore Ferragamo: Jan. 25
- Kering: Feb. 8
- Hermes International: Feb. 9
- EssilorLuxottica: Feb. 14
- Moncler: Feb. 28
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