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LVMH falls after confirming China border crackdown on luxury items

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LVMH extended losses after it said Chinese customs authorities are stepping up border checks on returning travelers, confirming speculation on social media networks and deepening a selloff in luxury companies' shares.

[PARIS] LVMH extended losses after it said Chinese customs authorities are stepping up border checks on returning travelers, confirming speculation on social media networks and deepening a selloff in luxury companies' shares.

"The Chinese authorities have some laws that are being enforced with some more strength at times, which is what we're seeing now," chief financial officer Jean-Jacques Guiony said on a call with analysts Wednesday.

Shares of the owner of Louis Vuitton, Christian Dior and Dom Perignon Champagne were down as much as 8.4 per cent in Paris, while rival Kering SA fell 9.1 per cent.

Social media reports last week that China is stepping up checks alarmed investors in companies ranging from LVMH to Japanese cosmetics maker Shiseido Co. Since then, the fashion companies' stocks have been on a downward trajectory.

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The slide deepened Wednesday even after LVMH late Tuesday reported that sales grew 10 per cent on an organic basis in the quarter, in line with analyst forecasts and previous periods despite a tough base for comparison. Growth in the Louis Vuitton brand's sales to Chinese customers slowed slightly, to a percentage in the middle teens, in the third quarter, Mr Guiony said.

The stepped-up customs enforcement may be aimed at curbing China's booming business in grey-market imports, the CFO said. Some Chinese residents snap up Louis Vuitton bags and other luxury items on trips overseas, where they're cheaper, then sell them at a profit when they return home, undercutting fashion companies' own stores in China.

DAIGOU MARKET

This parallel market, known as daigou, "is not something that we welcome or that we try to promote," Mr Guiony said, adding that the company limits the number of items that customers can buy at stores in Paris and other locations. "The Chinese moving in the same direction is good for us."

Despite the risk of unauthorised arbitrage in LVMH's goods, the company has no plans to equalise prices in China and abroad, he said. That gap narrowed over the summer because of a reduction in import duties, he said.

Selling spread to other luxury companies, including Moncler SpA and Hermes International, after a bearish Morgan Stanley note on the industry. The luxury sector "looks stretched on a number of our indicators even after the recent correction," analysts led by Krupa Patel wrote.

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