Investing.com -- HSBC (LON:HSBA) has maintained a cautious outlook on LVMH (EPA:LVMH) stock, citing "short-term uncertainties" that weigh on its performance prospects, particularly in the coming months.
The luxury goods conglomerate, despite its strong portfolio and dominance in the high-end market, faces several challenges that are likely to affect its near-term performance.
Analysts at HSBC pointed out that LVMH’s flagship brand, Louis Vuitton, has remained strong amid a challenging macroeconomic environment.
The brand is benefiting from a "buy less, buy better" consumer mindset, with sustained demand across a broad price spectrum and product categories.
Louis Vuitton is expected to continue being a major contributor to the company’s earnings, possibly delivering over half of the group’s EBIT in 2024.
However, this optimism does not extend across LVMH's broader portfolio. Brands like Dior and divisions such as Wines & Spirits, as well as the travel retail subsidiary DFS, are feeling the impact of weaker demand, particularly in the Asian markets.
Dior, which had quadrupled sales between 2018 and 2023, is currently going through a tough period marked by consumer fatigue and what HSBC describes as an innovation gap, leading to weaker sales momentum.
The Wines & Spirits division is also under pressure, with Champagne sales expected to decline as high prices continue to deter consumers.
LVMH’s performance in Q3 2024 is projected to be lackluster, with little growth expected in its Fashion & Leather division and challenges in key areas like Watches & Jewelry.
The overall sentiment among investors, as HSBC noted, is subdued, with low expectations for LVMH’s trading statement due on October 15, 2024. Compounding these issues is a sluggish recovery in the Chinese luxury market.
Despite stimulus measures, Chinese consumers have remained hesitant, further dampening prospects for luxury sales growth in the region.
Additionally, LVMH is facing internal challenges, including a series of management changes that, while potentially beneficial in the long term, add to the uncertainty in the short term.
This leadership reshuffle, combined with external pressures such as geopolitical tensions in the Middle East and potential tax hikes in France, creates a murky outlook for the company's stock performance.
In light of these concerns, HSBC has maintained a "hold" rating on LVMH, with a target price of €750. While there is some upside potential for the stock, analysts flag that there are few immediate catalysts to drive a meaningful rally in the short term.
Investors are advised to watch for a clearer recovery in key markets, particularly China, “we are waiting to see signs that growth can resume and don’t imagine that can happen convincingly before late 2025,” the analysts said.