3 Takeaways from the Third-Quarter Luxury Earnings

After a sluggish first half of the year, the luxury sector returned to modest growth in Q3, buoyed by the US stock market and a stabilization in China. But we’re not out of the woods yet. “It’s more a stabilization, at least in Asia, than things fundamentally getting much better,” Morgan Stanley managing director Édouard Aubin tells Vogue Business.

Still, LVMH — the bellwether for the sector — saw the biggest one-day share price move in over 30 years, after reporting better-than-expected sales (group sales were up 1% to €18.28 billion, versus consensus expectations of -0.6%). The share price was up 12% on October 15. Kering and Ferragamo, which also both beat consensus expectations, joined LVMH in a strong rally. “There has been a lot of concern and skepticism over the sector for the past 12 months-plus. Now, there is less negativity,” Aubin says.

Here are the key takeaways from luxury’s Q3 earnings.

Encouraging signs in China

The US market has driven luxury’s growth in Q3, with trade tensions easing and equities at record levels. However, performance in China was mixed. “The massive wealth effect [people spending more as they feel richer due to changes in their assets’ value] is helping the US a bit, but the US consumer is about 22% of total spend in luxury. So from an investor point of view, for the sector to work in the stock market, you need to believe that demand from China will pick up in a reasonable timeframe, and I don’t think anybody has a strong conviction on that yet,” says Aubin.

Two perspectives emerged: mere stabilization in China, or real improvement. Prada aligns with the former. “We have seen a kind of plateau in China,” Prada Group CEO Andrea Guerra said during the company’s earnings call. “[Summer] holidays were better than what we expected, but I would keep the word ‘plateau’.”