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Investing.com -- TD Cowen lowered its rating on LVMH (EPA:LVMH) shares to Hold from Buy amid global macroeconomic pressures, especially in China and the United States, which together account for approximately half of the company’s sales.
These headwinds, according to the brokerage’s analysts, could “lead to lack of upside at the Fashion & Leather division,” which represents around 80% of the company’s EBIT.
“Weaker discretionary spending trends, middle and upper income customer exposure, recession risk, and soft luxury exposure could drive negative volume trends,” the analysts said.
TD Cowen warns of potentially flattish to slightly negative sales in the U.S. for the F&LG segment, with continued negative performance in China throughout the year.
The revised forecast includes a consistent mid-single-digit percentage decline in F&LG sales in the second quarter, with a slight improvement to a low-single-digit percentage decline in the second half of the year. This projection falls short of the market’s expectation for a low-single-digit percentage increase.
Other concerns include slower growth at Dior from the first quarter of 2024, challenging comparisons at Sephora amid increased competition from Amazon (NASDAQ:AMZN), and potential impacts on the Wines & Spirits division due to tariffs and reliance on aspirational consumers.
Despite LVMH’s focus on product innovation and strong free cash flow trends, with an estimated over €11 billion in FY25E, the analysts highlight risks of price-to-earnings (P/E) compression and lower Street estimate revisions.
Alongside the rating downgrade, the analysts also slashed their price target on LVMH to €500 from €840.
They model an EBIT margin of 21.6% for the full fiscal year 2025, lower than the Street’s 23%, given lower sales estimates. “Management is focused on investing in brands across the organization, which could be a near-term margin headwind in a declining sales environment,” analysts said.
Each 2% decline in revenues could result in a margin deleverage of 50-100 basis points, potentially impacting EPS by approximately 4-8%, they added.