The global luxury industry is quietly entering a cold winter, with LVMH posting its largest quarterly decline since the burst of the dot-com bubble.

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The global luxury goods industry is undergoing its most severe market test since the new century began. LVMH’s share price plummeted 28% in the first quarter this year, marking the largest single-quarter drop since the bursting of the internet bubble and making it the worst-performing European luxury stock this year, with the industry’s overall valuation heavily compressed.

Rising geopolitical tensions in the Middle East have become the core trigger for this wave of sell-offs. Demand for bags, shoes, watches, perfumes, and wines has softened across the board, impacting dozens of LVMH brands, including Louis Vuitton, Christian Dior, Fendi, Bulgari, and Moët Champagne.

Meanwhile, Richemont fell 20%, Hermès declined 25%, and the luxury sector’s overall valuation is about 15 percentage points below its long-term historical average.

LVMH CEO Bernard Arnault’s personal wealth evaporated by about $55.4 billion in the past quarter, making him the biggest loser among the world’s 500 richest people.

LVMH Faces Multiple Concerns

This wave of sell-offs not only reflects macro-level uncertainties, but also exposes multiple concerns at the corporate level for LVMH.

According to UBS analyst Zuzanna Pusz in a client report on Tuesday, LVMH currently faces three pressures: weak guidance for January results, greater exposure of its brands to consumer groups with relatively limited spending power, and continued sluggish performance in wine and spirits—especially weakness in Hennessy.

These factors combined have caused LVMH’s share price to trade at a 20% discount relative to peers, making it the lowest valued company in the sector.

In the first quarter this year, LVMH’s 28% drop in stock price exceeded the largest single-quarter drops seen during the COVID pandemic and the 2008 financial crisis, but has yet to surpass the all-time high of a 41% drop in the third quarter of 2001.

Geopolitical Conflicts Suppress Sector Valuations

The compression of valuations in the luxury industry largely stems from uncertainty at the geopolitical level.

Pusz wrote in her report, "Rising global uncertainty has triggered significant anxiety among investors, especially those who had expected a recovery in luxury demand this year, leading to a sharp contraction in sector valuations."

She noted that developments in the Middle East are the main driver behind falling valuations for luxury stocks, and the sector as a whole is already trading about 15 percentage points below its long-term average compared to the broader market.

John Plassard, investment strategy director at Swiss private bank Cité Gestion, commented:

"LVMH is no longer just a luxury stock; it is now a barometer of global confidence. The core of the problem isn’t the Middle East risk exposure itself, but the signal it sends: uncertainty, pressure on the wealth effect, and broader fears of an economic slowdown."

Analysts: Depressed Valuations May Breed Opportunity

Despite the gloomy market sentiment, some institutional analysts have begun to focus on the possibility of a valuation recovery.

Goldman Sachs’ European luxury stock basket (GSXELUXG Index) shows that the sector now seems to have found support near the trading range seen in 2022.

Pusz said that despite uncertain industry prospects, she has not found clear signs of a real demand slowdown in her latest channel research, especially in Asia. She further pointed out:

"Against extremely pessimistic market sentiment and persistently low valuations, even slightly better-than-expected results in the first quarter could have an outsized positive market response. Fundamentally, we continue to expect most companies to achieve quarter-on-quarter improvement, but stock selection remains crucial. Richemont and LVMH are our top picks."

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