'Holiday postponed': LVMH shares fall after weak quarter in Middle East

Shares in luxury giant LVMH fell more than 2% in Paris trading on April 14 after it revealed how much the U.S.-Iran war has affected sales. It is the first major luxury company to show how the Middle East crisis has affected demand, The Wall Street Journal noted.

As a result of the conflict, organic revenue growth fell by about 1 percentage point in the first quarter, LVMH said. In total, sales fell 6%, the quarterly report shows. "In March, demand was down 30-70% - depending on specific shopping centers and business segments," LVMH CFO Cecile Cabanis said in a call with analysts, referring to the Middle East, which accounts for about 6% of the group's revenue, CNBCwrites. This share is in line with the industry average, WSJ notes.

The drop in sales was the result of attacks on infrastructure in the UAE, which hit the tourist flow to Dubai - one of the main drivers of growth of the luxury market in the region. In March, the revenue of European luxury goods manufacturers in one of the largest shopping centers in Dubai - Mall of the Emirates - collapsed by 30-50%.

LVMH shares have plunged 26% since the beginning of the year, and are now trading at a 15% discount to their historical average on a multiple of expected earnings, the WSJ calculated.

"The holiday is postponed," commented Bernstein analyst Luca Solca, referring to the fact that the luxury goods sector has just started to show signs of recovery after years of decline caused by weak interest from Chinese consumers.

The analyst noted that the key luxury consumer groups - Chinese and Americans - are now maintaining strong demand. LVMH organic sales in Europe and Japan in the first quarter decreased by 3% in each region, while in the U.S. increased by 3%. In Asia excluding Japan, growth was 7%. But even though results improved year-on-year, "this is probably not enough to convince investors to move from a wait-and-see stance to action," Solka said.

Barclays after the LVMH report reiterated its recommendation to hold the company's shares, keeping the target price at €570. This target implies the growth of quotations by 18% relative to the last closing price. Deutsche Bank kept the "bullish" position, it advises to buy securities of the luxury holding. It slightly adjusted the target from €620 to €600, while the new benchmark is 24.5% higher than the current quotations.

Opinions of Wall Street analysts on LVMH shares remain ambiguous: 15 out of 27 ratings suggest a recommendation to buy, 11 analysts advise to hold the luxury giant's securities, and only one - to get rid of them.

This article was AI-translated and verified by a human editor