China’s reduced spending saps European luxury stocks

July 16 (Reuters) – A profit alert from Hugo Boss and weak China sales at Richemont added to evidence that Chinese appetite for luxury goods may have peaked, knocking share prices on Tuesday, while Porsche’s exposure to the world’s No. 2 economy also rattled investors.

China has been a major source of growth for the luxury industry, with the market tripling in size between 2017 and 2021 and rebounding last year from pandemic lockdowns.

But that has changed as economic uncertainty has made middle-class shoppers cautious, while those still rich enough to afford luxury are wary of ostentation, analysts say.

Luxury share prices began this week’s slide on Monday when Britain’s Burberry BRBY.L sacked its CEO, warned on profit and scrapped its dividend, sending its share price to the lowest in more than a decade.

On Tuesday, it extended losses, falling more than 3%.

The company had already been the worst performer among luxury stocks over the last five years and its share price has shed around 50% since the start of the year.

Burberry has been trying to reposition itself at the higher end of the luxury market, which has been more resilient in the face of reduced discretionary spending.

German fashion house Hugo Boss BOSSn.DE has also been on an expansion drive. On Tuesday, it cut its sales and earnings guidance for the year in response to weakening consumer demand, especially in markets like China and the UK.

Its shares dropped more than 7%, making it one of the worst performers on the pan-European STOXX .STOXX.

Cartier-owner Richemont CFR.S reported on Tuesday almost flat sales in the three months to June, with a slump in Chinese demand pushing the overall result slightly below expectations. Sales dropped as much as 27% in China.

Its shares were also close to flat, up around 0.8% on the day.

Even companies that have bucked the trend got caught in the negativity.

Italy’s Prada, listed in Hong Kong 1913.HK, closed down 2.5% after falling by as much as 5.6% earlier in the session.

Its first-quarter results, reported in April, had shown still booming demand for its high fashion brand Miu Miu and continued growth in Asia.

China’s retreat from luxury extends to fast cars.

Shares in Porsche AG have lost more than a fifth over the last three months, in part because of the group’s weakness in China, its most important market.

Earlier this month, Porsche said its first-half vehicle deliveries fell, dragged lower by a 33% year-on-year drop in China.

Investors’ concerns about Chinese exposure increased on Tuesday after former U.S. President Donald Trump picked Senator J.D. Vance, known for his hardline stance on China, as his running mate for November’s presidential election.

Porsche’s P911_p.DE shares lost more than 5% on Tuesday before paring losses slightly.

(Reporting by Mimosa Spencer in Paris, Amanda Cooper, Yadarisa Shabong and Sarah Young in London; Writing by Barbara Lewis; Editing by Josephine Mason and Catherine Evans)

((Barbara.hm.Lewis@thomsonreuters.com;))