According to the Futu Securities News App, the fluctuations in the European luxury stock earnings season indicate that even the strongest brands are not immune to the impact of declining spending from affluent consumers. Industry leader LVMH (LVMUY.US) announced its first half-yearly report this week, and its lackluster sales data surprised traders. The financial report shows that the company's revenue for the first half of the year fell by 1% year-on-year to 41.677 billion euros, achieving 2% organic growth; net profit The same period last year fell by 14% to 7.267 billion euros.

Before this, there were reasons to believe that the industry's sales slowdown was mainly attributed to companies facing management and brand changes, such as Burberry (BURBY.US), Hugo Boss (BOSSY.US), and Gucci's parent company Kering (PPRUY.US) Recent earnings warnings issued. On the contrary, LVMH's losses across the board have triggered a significant drop in the company's stock price, shattering the complacency of some investors hoping the giant will revive the industry's rebound. As of the time of publication, LVMH's US stocks fell by 2.86%.

Goldman Sachs's basket of European luxury-related stocks skyrocketed 57% between 2020 and 2023. The industry has grown significantly during the epidemic, but 2024 is the "detox" year for the luxury goods industry, according to Flavio Cereda of GAM UK Ltd. "This is a challenging year, you have to be very careful in doing your homework," said this investment manager in a phone call.

Due to their ability to achieve rapid growth and withstand economic fluctuations, a group of European luxury stocks have been compared to Wall Street's Tech Megacaps. However, this comparison seems to be inappropriate now, and the luxury goods of Goldman Sachs' basket have fallen 17% since reaching a peak in March.

Even the historically strong Lefeng Group (Richemont), which is considered by high-end jewelry brands Cartier and Van Cleef & Arpels, saw sales in the Greater China region drop by 27% in the third quarter, and sales of its watchmaking department fell 13%.

Against this backdrop, poorly performing companies attempting to make a comeback face greater challenges than those with more loyal (and generally richer) customer bases. The risk is that the weakness in the luxury goods market will force all companies except the most powerful ones to face long-term downturns.

Citigroup analyst Thomas Chauvin said in a report after Burberry issued a profit warning, "Achieving brand transformation in the increasingly competitive luxury goods market seems to be more complicated. In this market, scale, top design talent, and marketing strength are all important."

However, a few people are still optimistic about the luxury goods industry. Italian luxury cashmere clothing manufacturer Brunello Cucinelli SpA has shown the ability to resist adverse environments. This is a good sign for Hermes, which will announce its results, because the customers of this leather goods maker are often super-rich. Similarly, according to LVMH, Chinese tourists are still consuming while traveling abroad.

For long-term investors, the stock market's pullback is reducing the valuations of these stocks to slightly satisfactory levels. Ashley Wallace, an analyst at Bank of America, said the stock price crash caused by LVMH's financial report was an "attractive buying opportunity."

Wallace said in a report: "It is important not to forget the big picture: LVMH faces a powerful industry of structural growth, high entry barriers, strong brand portfolios, and top-notch management teams."

That being said, for those looking for buying opportunities, the problem is the timing of the recovery and whether it will appear in the second half of this year or in 2025. In addition, political turmoil on both sides of the Atlantic has added uncertainty factors, and investors may need to be patient.

Dana Telsey of Telsey Advisory Group said: "In the second half of the year, (luxury goods companies) will continue to slow down until we see a rebound in tourism and more stability and certainty. Therefore, before all this happens, luxury goods companies will have to continue to innovate in products and marketing and get closer to customers."