Luxury Sector: Economic Outlook for 2024

Investing in quality and excellence will be the key themes of this year. The outlook, however, leans towards an economic slowdown, continued disinflation, and the gradual easing of monetary policies that began in Switzerland. The U.S. economy remains robust, but challenges are emerging, particularly in the labor market. Business confidence is modestly improving in the eurozone and China. Disinflation persists in Europe, while the United States faces inflationary pressures. The Federal Reserve has not yet lowered interest rates, while the European Central Bank is considering rate cuts as early as June. The energy crisis has eased, reducing concerns about imported inflation. Additionally, budgetary maneuverability is limited by high levels of public debt. Governments must weigh between deficit reduction and maintaining stabilization policies.

Fortunately, for the luxury sector, the situation is more positive, with interesting investment opportunities to seize. In the first quarter of 2024, it recorded organic growth of 2%, with moderate growth prospects for the entire year. Despite the negative effects of exchange rates, EssilorLuxottica maintained growth of over 5%. Likewise, LVMH, the global leader in the sector, saw its organic growth slow to +3%, with reported sales of €20.7 billion. The group noted particularly strong growth of 10% in spending by Chinese customers during the quarter while spending by American, European, and Japanese customers experienced a slightly more pronounced negative trend. This dynamic illustrates China's increasing importance in the luxury sector.

For the upcoming quarters, the outlook remains cautious but encouraging. For 2024, moderate growth is expected, with an overall increase of 6% for the entire luxury sector. For LVMH, optimistic organic growth forecasts for the rest of the year - with a forecast of +4% in the second quarter, +8% in the third quarter, and +10% in the fourth quarter - indicate confidence in the sector's gradual recovery. Investing in luxury remains attractive despite current challenges, and brands continue to demonstrate their resilience and ability to maintain strong margins.

Among luxury sector companies, some stand out for their financial performance. LVMH's stock recorded a performance of +10% in the first quarter of 2024, far exceeding the sector average. This demonstrates the group's strength and investors' confidence in its ability to overcome current challenges. Similarly, as the global leader in eyewear, EssilorLuxottica offers promising growth prospects despite challenges in the Swiss watch market. For Richemont, financial results expected until March 2024 include reduced growth in the fourth quarter and ongoing pressure on margins in the second half. Despite cautious forecasts and a slight downward revision of EBIT over several years, jewelry remains a strong point, especially in China, supporting the group's relative confidence.

The luxury sector has recently experienced significant devaluation due to concerns about China and future growth rates. However, the expected recovery of the Chinese economy should stimulate demand for luxury products. These reasons explain why earnings per share revisions for the 2024 fiscal year are positive, thanks to solid underlying data in January and February, which should benefit high-end companies.