Investing.com -- Barclays has downgraded LVMH to “equal weight” from “overweight,” citing sustained macroeconomic headwinds, margin pressure, and a weakening recovery outlook for the company’s core Fashion & Leather Goods ( FLG ) division.
The brokerage lowered its price target on the stock to €550 from €755 and cut its 2025 earnings per share forecast by 16%.
The move reflects growing caution around luxury demand, especially in the United States, which Barclays previously expected to be a key growth driver.
Instead, a deteriorating macroeconomic backdrop, marked by rising tariffs, softening consumer sentiment, and recession risks, has forced a reassessment.
Barclays now expects U.S. GDP to contract 1.5% in the third quarter and 0.5% in the fourth.
FLG, which includes Louis Vuitton and Dior, continued to underperform in the first quarter and is projected to post a 3% revenue decline for the year.
Barclays estimates its EBIT margin will fall to 34.9%, down from 39.9% in 2023 and close to pre-pandemic levels.
A similar slowdown is anticipated across other segments, with group-wide EBIT expected to fall 15% to €17.6 billion, bringing the margin down to 21.6%.
While some brands like Louis Vuitton remain resilient, others have struggled to regain momentum, contributing to a widening performance gap between LVMH and peers like Hermes and Richemont (SIX: CFR ).
The outlook for U.S. and Chinese consumers, traditionally the sector’s main growth cohorts, has weakened amid slower offshore spending and less favorable foreign exchange rates.
LVMH reported a notable decline in Chinese tourist purchases in Japan during the first quarter, a trend expected to continue.
Tariffs have added pressure, though Barclays believes most luxury firms will pass these costs to consumers.
LVMH has already raised U.S. prices by an average of 4% across several core products. However, with aspirational consumers more sensitive to price increases, further hikes may face resistance.
Other divisions, including Wines & Spirits and Perfumes & Cosmetics, have also faced setbacks.
Cognac sales in the U.S. and China remain soft, while the beauty segment turned negative for the first time in several years.
Even Selective Retailing, bolstered by Sephora, is showing signs of slowing amid intensifying competition from Amazon (NASDAQ: AMZN ).
Despite a 23% drop in share price year to date, LVMH trades at roughly 20 times projected 2025 earnings, in line with its five-year average.
Barclays cautions that in past downturns, including the 2008 financial crisis and early COVID period, the stock’s valuation bottomed closer to 16 times forward earnings.
While upside risks include a faster-than-expected rebound in consumer demand or stimulus-driven recovery in China, Barclays sees few near-term catalysts.
The brokerage maintains a neutral view on the broader European luxury sector and continues to favor Hermes and Richemont, citing stronger fundamentals and more resilient brand momentum.