LVMH shares fall 3% as fashion sales miss recovery expectations

LVMH reported second-quarter fashion sales of €8.90 billion ($10.12 billion), missing the 1.7% consensus estimate as the Iran war weighed on European luxury demand.

"All the focus was on FLG," a trader said after the results. "The question remains whether the division can meet full-year expectations despite a tougher comparison in the third quarter," RBC analysts said in a note, adding this was necessary "for the stock to start working."

The fashion and leather goods division, which generates the bulk of LVMH's operating profit, grew 1% on an organic basis — its first quarterly increase in two years. Overall group revenue rose 3% organically in the second quarter, with watches and jewelry surging 11% and wines and spirits climbing 5%. The US market provided a tailwind as affluent consumers increased spending on luxury goods, helping offset weaker tourism in Europe tied to the Iran conflict.

"Our thesis for LVMH hinges on the recovery in luxury sector performance and the group's brands overperforming the industry in the long run," Morningstar analysts said. "So far, LVMH is still lagging peers, although trends are turning slightly more positive."

The miss leaves investors questioning whether the $400 billion luxury sector is decisively emerging from a two-year downturn. LVMH shares were indicated 2% to 3% lower in Paris premarket trading Tuesday, putting the stock on track for its lowest level since the Iran conflict escalated. The conglomerate's first-half revenue totaled €38.6 billion ($43.9 billion), with CEO Bernard Arnault saying the group's maisons "continued to inspire dreams and enhance their desirability."

The guidance miss signals that management expects the recovery to remain uneven. Investors will watch rival Kering's earnings later this week for sector-wide demand signals.

This article is for informational purposes only and does not constitute investment advice.