LVMH shares seen down as Iran war impact weighs on fashion sales

July 28 (Reuters) – Shares in LVMH were seen falling 2% to 3% in premarket on Tuesday, after the French luxury giant reported overnight second-quarter sales that failed to convince investors about an imminent recovery at its most profitable division.

The owner of Louis Vuitton, Dior and Moet & Chandon champagne said quarterly sales at its fashion and leather goods division, which generates the bulk of its operating profit, grew 1% when adjusted for currency swings, to €8.90 billion ($10.12 billion). 

That was the segment’s first quarterly increase in two years, though it still fell short of analysts’ expectations for a 1.7% rise. LVMH flagged weaker spending in Europe, where tourism has been hit by the Iran war.

“All the focus was on FLG,” a trader said after the results.

The question remains whether the division can meet full-year expectations despite a tougher comparison in the third quarter, brokerage RBC said in a note, adding this was necessary “for the stock to start working” in its view.

LVMH reported 3% overall organic growth in the quarter, leaving questions open on whether its relatively modest sales growth was enough to reassure investors that the $400-billion luxury sector is decisively emerging from a two-year downturn.

“Our thesis for LVMH hinges on the recovery in luxury sector performance and the group’s brands overperforming the industry in the long run,” Morningstar analysts said in a note to clients.

“So far, LVMH is still lagging peers, although trends are turning slightly more positive,” the brokerage added.

($1 = 0.8798 euros)

(Reporting by Alessandro Parodi in Gdansk, editing by Milla Nissi-Prussak)

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