French luxury groups point to sector’s resilience as demand holds steady for now

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PARIS, Oct 10 (Reuters) – French luxury groups LVMH (LVMH.PA), Gucci owner Kering (PRTP.PA) and Hermes (HRMS.PA) are expected to post double-digit sales growth in the third quarter while demand for ultimate fashion from tourists and shoppers revamping post-pandemic wardrobes remains strong.

The sector has navigated above stock market turbulence, lockdowns in China and soaring inflation in recent months, buoyed by its affluent clientele even as cheaper clothing and accessories retailers warn of a weakening demand.

After applauding a strong quarter, investors will be looking for any signs that appetite for big fashion brands may also be waning after the post-lockdown frenzy that has seen business boom in recent months.

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“Resilience will be tested from the fourth quarter of this year,” said HSBC’s Aurélie Husson-Dumoutier.

Slowing economic growth and declining consumer confidence and credit card spending in the U.S. paint a “cautious” picture for the consumer heading into the holiday season, warned Thomas Chauvet of Citi.

Companies’ price-raising strategies, which will likely have helped boost sales and aim to protect margins, will also come under scrutiny.

Luxury brands, including the biggest in the industry, LVMH’s Louis Vuitton, have historically raised prices at around 2.5 times the rate of inflation, according to UBS, which forecasts further price increases of at least the digits means next year, citing a global inflation forecast of around 4%.

Without citing a corresponding inflation figure, UBS estimates that prices in the sector rose 4.6% on average this year, through July.

Business in China is expected to have rebounded significantly from the second quarter as disruptions from the COVID lockdown ease, but uncertainty remains.

“China is where companies are experiencing high volatility, which makes it difficult to extrapolate trends from month to month,” Bernstein’s Luca Solca noted.

UBS’s Zuzanna Pusz, who ranks among the top 8 analysts covering LVMH in estimate accuracy according to Refinitiv data, expects the group to post organic sales growth for the quarter of 21%, with rates boosting change. A Visible Alpha consensus cited by the bank points to 13% organic sales growth.

Pusz anticipates organic sales growth of 13% for Kering and growth of 15% at constant exchange rates for Hermès, over the period.

LVMH publishes its third quarter sales on October 11, while Kering and Hermès announce their results on October 20.

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Reporting by Mimosa Spencer; Editing by Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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