Our FSW Markets All Luxury Index was down 6 percent over the past week, following a sharp decline in LVMH after releasing its full-year 2024 earnings report on January 27. Half of the index’s 18 constituents were down as LVMH was joined by Ralph Lauren, Tapestry, Kering, L’Oréal, PVH Corp., Capri Holdings Limited, and Moncler, which were roughly down 2 percent for the week.
The index remains up 14 percent for the year compared to a 2.3 and 8.6 percent return for the S&P 500 and the Euro Stoxx 50, respectively. However, the market’s reaction to LVMH’s earnings report will be cautionary for the industry as we continue to wade into further 2024 earnings reports. As we discussed in our review of the LVMH report (https://www.fashionstrategyweekly.com/p/lvmhs-full-year-2024-results-point), there were some positives and negatives to read into its 2024 results.
One negative that stands out more prominently now than it did mid-week is the possibility that hopes that growth in U.S. sales would be able to fill some of the gap left by Chinese consumers could be misplaced. For LVMH, sales in Asia (excluding Japan) were down 11 percent, while U.S. sales were up 2 percent. However, the rollout of broad-based and untargeted U.S. tariffs against Canada and Mexico last week will send a shiver down the spine of the luxury industry. The U.S. administration has suggested that tariffs against the EU are coming, prompting a promise of retaliation from Europe.
This is bad news for the luxury industry and Europe more broadly. Triangulating among a variety of sources, luxury products account for around 5-8 percent of European exports to the U.S. The American market represents about 25 percent of the global demand for European luxury organizations, and this percentage has been growing.
In other news, in the past week, U.S. GDP grew at 2.3 percent in Q4 and 2.8 percent for the full year, slightly below consensus forecasts but ahead of long-run forecasts. The European Central Bank cut rates by 25 basis points to 2.75 percent amid continued weak eurozone growth. News continued to be poor out in China as PMI data pointed to worsening conditions across manufacturing, services, and construction.
In the week ahead, we will get an interest rate decision from the Bank of England, further PMI data from China, and a U.S. inflation report.