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Disappointing earnings reports from some of the most high-profile names in the luxury goods and technology sectors undermined sentiment last week, triggering declines across markets worldwide. The blue-chip S&P 500 and technology focused indices fell 1.8% and 3.5% respectively.
Shares in LVMH, the world’s largest luxury group, fell 5% on Wednesday after it reported sales of 20.98 billion euros in the second quarter, falling short of analysts’ expectations. The fashion-to-champagne conglomerate saw sales in Asia, excluding Japan, fall 14% from a year earlier and revenue from wine and spirits declined 5%.
A day later, shares in Kering plunged 8% to a seven-year low after it issued a profit warning. Sales at its flagship Gucci brand, which accounts for around two-thirds of group profits, fell 19% in the second quarter despite the company asserting that product lines from Gucci’s new creative director Sabato de Sarno have been well received by customers.
The biggest luxury brands have all been hit by the downturn in demand from China. Once the lifeblood of the sector, consumers in the world’s second-largest economy have reined in spending on premium goods in a more challenging economic environment, particularly a persistent property downturn.
At a time when investors were already on edge over the recent rotation out of the Magnificent Seven tech stocks, which have propelled markets over the past 18 months, the negative market reaction to Alphabet’s mixed earnings report was less of a surprise.
Google’s parent company revealed revenues increased 14% to $84.74 billion in the second quarter, driven by search and cloud, but YouTube advertising sales fell short of expectations.
Capital expenditure was also higher, and set to increase further, as the company invests more in artificial intelligence (AI) technolgies which will likely hit profit margins in the upcoming quarters.
Tesla shares (-12%) suffered a more severe drop on Wednesday after the company reported net income for the second quarter fell 45% to $1.47 billion. Tesla produced and delivered fewer vehicles than in the same period last year and costs rose due to employee layoffs and investments into AI infrastructure, including more gigafactories.
The EV manufacturer also postponed unveiling its “robotaxis” until October, but chief executive Elon Musk asserted the fleet of autonomous vehicles will catapult Tesla’s valuation into the trillion of dollars. Tesla’s market valuation fell by $95 billion to $690 billion on the day, wiping more than $20 billion off Musk’s personal wealth.
EasyJet (+5%) was the top performer in the FTSE 100 on Wednesday after it reported a 16% rise in pre-tax profits to £236 million in the previous quarter. The low-cost airline flew 25.32 million passengers in the three months to the end of June, an 8% increase over the same period last year, and revenue per seat, which includes extras such as hold luggage, larger cabin bags and inflight refreshments, rose 1% to £81.61.
EasyJet also revealed that it is targeting a record summer performance and has booked 69% of seats for the current quarter. The bullish outlook contrasts sharply from that given by competitor Ryanair just days earlier.
Europe’s largest airline warned that summer airfares will be “materially lower” than last year due to weaker than expected consumer demand and its shares plunged more than 17%.
In commodity markets, Brent Crude edged back below $80 a barrel for the first time in six weeks despite the risk of a widening conflict in the Middle East in the wake of Iranian-backed Hezbollah’s rocket attack on the Golan Heights which killed 12 children.
Instead, traders continued to focus on the weakening demand outlook from China, the world’s largest importer of crude oil.
Another busy week lies ahead for corporate earnings reports, including from technology giants Amazon, Apple and Facebook’s parent Meta Platforms. The Federal Reserve is not expected to announce any changes to US interest rates this evening, but tomorrow’s Bank of England decision is a much closer call. Money markets are pricing in the probability (55%) of a rate cut as near enough a coin flip.
