LVMH’s revenue slipped for the second consecutive quarter amid a market slowdown for luxury goods that even the sector’s leading conglomerate is struggling to shake off.
Second-quarter revenues fell 1 percent in absolute terms for the Louis Vuitton and Dior owner, but were slightly positive on an organic basis, rising 2 percent after currency shifts including a sharp decline in the Japanese yen were taken into account. The results missed analysts’ forecasts of 3 to 4 percent organic growth.
Global Slowdown
A 14 percent drop in sales in Asia (excluding Japan) deepened versus a 6 percent drop the previous quarter as LVMH’s brands struggled to shake off macro-economic gloom and shifting consumer priorities in the key Chinese market.
China’s central bank cut interest rates this week in a bid to revitalise struggling property markets, which is one key factor dampening consumer confidence. But authorities also pledged to “properly regulate excessive incomes” in the latest sign that glitzy lifestyles are falling out of favour.
A higher renminbi and Hong Kong Dollar are also depressing sales in duty-free hubs in Hong Kong, Hainan and Macau, though some of those sales are being absorbed by Japan, where an alluringly low currency has drawn shoppers from abroad. LVMH sales surged 57 percent in Japan even as price hikes to offset the currency shift penalised local clients.
The US grew by a lacklustre 2 percent as economic growth slowed and enthusiasm for luxury brands continued to fall from post-pandemic highs.
LVMH’s results follow weak reports from rival conglomerate Richemont, which reported revenues down 1 percent last week, and British mega-brand Burberry, where comparable retail sales plunged 22 percent. Gucci owner Kering is expected to report sales down by 10 percent Wednesday after market.
Brands and Categories
Watches and jewellery (including blockbuster acquisition Tiffany & Co.) and wine and spirits were LVMH’s hardest hit categories, with sales falling by 4 and 5 percent, respectively, while the group’s key fashion and leather goods division reported a 1 percent organic increase.
The selective retailing division, dominated by Sephora, was the brightest spot, rising 5 percent, while the perfume and cosmetics segment that sells makeup and perfume for Dior, Givenchy and Fenty grew by 4 percent.
LVMH’s first-half operating profits fell 8 percent year-on-year even as the group raced to reign in costs in line with the deteriorating climate for high-end brands.
But the group maintained a rapid pace of store renovations at units including jeweller Tiffany & Co. “Consistency and long-term thinking are of the essence in this business, and we are walking the talk,” chief executive officer Jean-Jacques Guiony said.
Tiffany & Co. remains under pressure due to a higher exposure to aspirational clients in the US than rival luxury jewellers, as well as a slowdown in bridal.
Uncertain Outlook
Guiony struck a cautious tone for LVMH’s outlook in the rest of the year, citing uncertainty regarding how China’s policy changes will be implemented — and how customers will respond.
It’s similarly unclear when less wealthy customers in the US will start shopping again, even as sales to top-spending clients continue to outperform.
American customers in particular have baulked at dramatic price hikes for luxury products in recent seasons. Last week’s nomination of former Coach CEO Joshua Schulman to lead Burberry signalled that more accessible propositions could become a priority for the industry.
Guiony defended a recent price increase at Louis Vuitton as “routine,” however, and said that LVMH’s brands were not exploring lowering their price mix. Upgrading products (and the prices charged for them) remains “an essential component of the growth going forward,” Guiony said. “What we are doing since 30 years is not coming to an end just because the aspirational customers are a little under pressure.”
Overall, “We have no idea what the outlook will be,” Guiony said. “We’ll have a slightly more favourable comparison base in the second half of the year. Is it sufficient to be optimistic? I don’t know.”
“In retail, our visibility is as good as yesterday’s sales,” Guiony added.
Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.
