China’s economy has been struggling since the outbreak of the pandemic, with consumers tightening their wallets and demand for luxury goods declining. French luxury goods giant LVMH Moët Hennessy Louis Vuitton Group (LVMH) announced on Tuesday (October 15) that its third-quarter sales fell by 3%, below expectations. This marks the first quarterly sales decline for the group since the pandemic began.
During the three months ending in September, the world’s largest luxury goods group recorded revenue of 19.08 billion euros (20.8 billion US dollars), with organic revenue down by 3% after accounting for the effects of exchange rates, acquisitions, and asset disposals. This figure was lower than the general expectation of a 2% organic growth cited by Barclays.
In a statement released on Tuesday, LVMH stated that organic revenue for its key fashion and leather goods division dropped by 5% in the third quarter. Analysts had originally expected a slight increase. In comparison, this division saw a 9% growth in the same period last year and includes brands like Celine, Fendi, and Loewe.
According to Reuters, Luca Solca, an analyst at Bernstein, described LVMH’s third-quarter sales as “seriously” below expectations and “across the board below expectations.”
Following the announcement, LVMH’s American depositary receipts fell by 10% in New York.
Operated and controlled by the world’s fifth-richest person Bernard Arnault, LVMH owns around 75 luxury brands encompassing fashion, jewelry, hotels, and spirits. The group’s major divisions all performed below analyst expectations in the third quarter.
The LVMH Fashion and Leather Goods division, where Louis Vuitton and Dior brands are located, reported a 5% decline in sales, significantly lower than the expected 4% growth, marking the division’s first decline since 2020.
Jean-Jacques Guiony, Chief Financial Officer of LVMH, stated, “Sales in the fashion department have slightly improved in the European and American markets but performed poorly in the Chinese and Japanese markets.”
Fashion and leather goods account for nearly half of LVMH’s revenue and almost three-quarters of its recurring profit.
In Asia (excluding Japan), where China dominates the market, the sales decrease widened from 14% in the previous quarter to 16%.
Due to concerns about slowing economic growth and the real estate market crisis, Chinese consumers have cut back on spending on expensive goods. Sales performance in Japan also fell short of expectations as the strong yen dampened the purchasing power of Chinese consumers buying luxury goods in Japan.
LVMH indicated that due to the stronger yen, sales growth in Japan slowed from 57% in the previous quarter to 20%.
RBC analyst Piral Dadhania suggested that the market may hold a negative view on these results, indicating that the “economic slowdown (in China) is more pronounced than expected.”
The decline in sales for LVMH, as well as the larger sales decline reported by the smaller Italian company Ferragamo, are unlikely to stabilize the market.
“LVMH represents the industry in the eyes of many, and this performance will inevitably lead to more short-term volatility,” said Flavio Cereda, Co-Head of Luxury Brand Investment Strategy at GAM, which holds luxury stock.