Why LVMH Stock Was Sliding Today

Key Points

• The U.S. and E.U. agreed on a 15% tariff for most goods imported from Europe.

• Luxury goods will be included in the tariff.

• LVMH's first-half report last week showed the challenges it's facing.

• 10 stocks we like better than LVMH Moët Hennessy - Louis Vuitton ›

Shares of LVMH Louis Vuitoon Moet Hennessy (OTC: LVMUY) were pulling back today after the luxury conglomerate giant as investors continued to digest last week's disappointing earnings report and reacted to the new tariff agreement between the U.S. and the European Union.

As of 1:45 p.m. ET, the stock was down 2%.

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Luxury weakness continues

LVMH was one of several high-profile European stocks to fall today, including Heineken, Puma, and AB/InBev, and its European luxury peers like Hermes, Kering, and Richemont also fell. A combination of weak results from some big European companies and concerns about the tariff agreement seemed to be the reason for it.

The E.U. and the U.S. agreed to a 15% tariff on European goods, which France, where LVMH is based, denounced as a "submission" on Monday. The resolution avoids a trade war, but will add a large cost to luxury goods, which are included in the tariffs, at a time when they are already struggling.

LVMH has struggled in recent quarters. In its first-half report last week, LVMH said that revenue was down 4% through the first two quarters of the year, while operating profit fell 15% to 9 billion euros. Weakness in Asia was the primary culprit.

Organic revenue declined by 7% in fashion and leather goods, which make up nearly half of its sales. The trade war is likely to impact that segment as well as wines and spirits. Trade-related pressure on China is also hurting demand for luxury goods in that key market.

What's next for LVMH?

Investors are hoping for a trade deal to be announced with China, which could be beneficial to LVMH, as China makes up roughly a quarter of the world's luxury market. There's also some disappointment that luxury goods weren't carved out of the trade deal with the U.S., but a strong economy and stock market likely act as a counterweight to any import taxes imposed on its goods.

LVMH has a strong portfolio of brands, which should provide long-term stability, but investors should expect more volatility over the short term.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.