After the company's latest earnings report, shares of luxury retail firm LVMH (LVMUY) are now down more than 27% off the mid-July highs around $200 per share. Undoubtedly, the high-end discretionary goods boom has ended, with "aspirational" buyers — middle-class consumers looking to purchase LVMH products as status symbols — taking the biggest hit at the hands of inflation and renewed recession fears. Meanwhile, consumer savings built up during the earlier days of the pandemic have long since been exhausted. 

As the cost of living continues to surge, it's hard to imagine the aspirational consumer returning to splurge beyond their means anytime soon. Not while recession risks rise with every upward move in the 10-year yield. 

LVMH Sails Through a Rough Patch

Sure enough, LVMH just delivered a surprise miss on third-quarter revenue, with sales of 19.96 billion euros (which roughly translates to just north of $21.2 billion) coming in virtually flat year over year. 

The wine and spirits division took a hit, while the perfumes & cosmetics and fashion & leather goods segments came in flat. It seems that LVMH, one of the most resilient upscale performers in the entire world of retailers, is now finally starting to feel the pressures of macro headwinds.

In a prior piece, I outlined how aspirational consumers were a significant source of the company's post-pandemic boom toward all-time highs. Still, I warned that the fading spending power of this consumer would be a major "sore spot" for the firm going into autumn, and that shares were at risk of "giving back a big chunk of the gains" they enjoyed in the post-lockdown spending spree.

Fast forward to today, and LVMH is in a bear market, with the shares now going for $146 and change. After such a rough patch, the stock now trades at around 22 times trailing price-to-earnings (P/E) — a relatively low price to pay for exposure to what I believe is the highest (or close to the highest) end of the luxury goods market.

That said, consumer-facing headwinds could continue to drag the stock lower, perhaps all the way back to a level of support just below the $130 mark. 

While the current dip could prove to be a wise long-term entry point, investors should expect such prominent booms and busts based on drastic shifts in consumer sentiment and expectations for the global economy. 

LVMH and the other luxury retailers are consumer discretionary stocks, after all. High-end handbags, fragrances, and jackets aren't exactly a need-to-have at a time when disposable income has dried up for all but the most affluent consumers.

Wall Street Views Luxury Retailers as Discounted

While you may not be able to snag any one of LVMH's brands (think Louis Vuitton, Tiffany, and Dior) at the discount rack, I do think Mr. Market has thrown the stock in the bargain bin following the August-September markdown. A few Wall Street analysts certainly seem to think so.

Though the stock may have yet to bottom out, Morgan Stanley (MS) and Bank of America (BAC) are still upbeat on the high-end retailer and the industry despite consumer headwinds. In fact, Morgan Stanley went so far as to call the high-end retailers - a group that includes LVMH - cheap at current levels, pointing to operating margins that could remain at "historical highs in the coming years."

Morgan Stanley is right to call LVMH cheap. Its powerful brands are the sharks within its moat. And though a recession could dampen growth over the medium term, it may prove difficult to stop the high-margin growth on the other side of the economy's slowdown.

Adding to Morgan Stanley's bullishness, Bank of America also gave the thumbs-up on luxury firms, but noted investor patience will be essential.

Indeed, there's still a storm to ride out for the luxury firms. At these valuations, though, strong-stomached investors with a nose for value may wish to keep a close watch on this group of stocks. Whenever the economic tides do turn (after a soft or rough landing), LVMH will be ready to heat up again.

The Bottom Line

LVMH is finally feeling the pinch of inflation and consumer headwinds. Still, the long-term fundamentals remain attractive. The only question is exactly how much of the stock's rally to all-time highs will be clawed back as we head into year's end.