BofA joins growing bearish chorus on troubled luxury sector

European luxury stocks fell further as Bank of America analysts became the latest to sound the alarm on the beleaguered sector, cutting its rating on industry benchmark LVMH to neutral and downgrading others.

“We are now pricing in a more prolonged slowdown in luxury revenue growth, which will likely translate into further pressure on margins,” Bank of America analysts led by Ashley Wallace wrote in a note, adding that this is likely to continue into the second half of this year and into 2025.

Along with LVMH, the analyst cut Kering SA to neutral and Hugo Boss AG to underperform and slashed price targets across the sector, sending shares in all three tumbling on Monday. A drop of as much as 1.7% in LVMH shares and a 1.8% drop in Hermes International SCA caused France’s CAC 40 index to underperform European benchmarks on Monday.

The slowdown in China, a key market for high-end goods makers, has been a growing concern for investors. Recent data showed the country's economy lost momentum in August, raising fears that the government will miss its annual growth target without additional stimulus.

Bank of America’s cuts follow recent warnings from analysts at Goldman Sachs Group Inc. and Jefferies International Ltd. about the risk of further profit losses as demand from Chinese buyers remains weak. A gauge tracking the sector has fallen 13% this year, compared with a gain of more than 7% for the MSCI Europe index.

Luxury goods companies need to refocus on creativity, fashion content and novelty to boost volumes, Bank of America's Wallace said, noting that brands introducing fashion novelties have regained momentum this year.