Luxury stocks took a hit in Europe Wednesday after Chanel warned that the industry is “entering a more challenging environment” and analysts said they see growing pressure on profit margins at the exclusive brand.

See catwalk

The Euro Stoxx Luxury 10 Index fell as much as 1.9%, the most in about a month, after privately owned Chanel Ltd. published 2023 financial results. While the famous fashion, cosmetics and jewelery house reported double-digit growth in sales and profit, attention homed in on the cautionary tone of its outlook.

“After three years of exceptional growth for our industry, we are now entering a more challenging environment,” said Philippe Blondiaux, Chanel’s global chief financial officer.

Luxury stocks have been volatile this year, with underwhelming updates and warnings from the likes of Kering SA raising concern that consumers are thinking twice before splurging. A post-pandemic rebound in the key Chinese market has faltered. Elevated valuations haven’t helped either, with the sector trading at above-historical average forward price-to-earnings ratios and a whopping 100% premium to the broader market. 

Hermes International slid as much as 3.6% on Wednesday, while Kering and LVMH Moet Hennessy Louis Vuitton SA dropped 2% and Richemont fell 1.1%.

According to CIC Market Solutions analyst David Da Maia, operating income at Chanel was eroded by more than 100 basis points because of a 20% increase in marketing spending. 

“The group refers to a less favorable market environment in 2024 and gives no indication — unlike in previous years — of its performance in recent months, suggesting that its growth has clearly slowed since the beginning of the year, in line with the sector as a whole,” Da Maia said in written comments.