Luxury stocks slump amid growing signs of spending slowdown

Richemont expects a 45 percent drop in first-half operating profit, while Hermes abandoned its mid-term target for eight percent growth in annual sales.

“To my amazement, not too many of our competitors are following suit. some of them, esteemed companies, continue to pump excess stock into the market that will inevitably end up in the grey market”, Rupert said.

Hermes shares fell as much as 7.7 percent in Paris, the steepest drop in nearly three months, even as first-half profit beat estimates. Swatch Group AG reported a 54 percent decline in first-half profit in July.

The luxury industry is grappling with another year of waning demand as China’s campaign against extravagant spending is aggravated by a drop in tourism after terrorist attacks in France and Belgium.

This was driven by a 16 per cent downturn in jewellery sales and a 19 per cent drop in watch sales – which usually provide nearly half of the group’s revenues. “The warnings show that macro and geopolitical uncertainties put near-term volume growth in question”, said Zuzanna Pusz, an analyst at Berenberg.

Richemont shares, which have fallen 17 percent so far this year after a decline of nearly 19 percent last year, were down 3.2 percent at 1226 GMT. Prior to Wednesday, the stock had gained 24 percent this year as other luxury stocks had stagnated or fallen.

Hermès lost almost 7% to €361 after the maker of the celebrity-adored Birkin bags said it no longer sees annual sales growth of about 8%, and instead has an unspecified “ambitious goal” for growth.

While Heremes’ first-half results were better than expected, “there is a lot of uncertainty around the world” the company’s CEO Axel Dumas said in a conference call.

Hermes reported first-half earnings before interest and tax rose to 826.8 million euros. Analysts predicted 818.5 million euros, according to the median of 12 estimates. Analysts had expected a 41 percent drop, according to estimates compiled on Bloomberg.

“Cartier and others have been buying back thousands of watches in Hong Kong and destroying them or moving them to other markets”, he said.

“Richemont and Hermes have both delivered downbeat trading updates and their stocks are being sold off in sharp fashion as a result”, said Neil Wilson, markets analyst at ETX, as quoted by The Guardian. “The world now has an excess of every manufactured good”.

“We consider that the hard trading conditions are likely to continue during September”.