In a report released on Tuesday, July 23, the LVMH (Moët Hennessy Louis Vuitton) group indicated a slowdown in sales growth during the second quarter, falling short of expectations. While Western markets have seen a slight recovery in demand, Chinese consumers continue to tighten their wallets, particularly in spending on high-end goods.
According to Reuters, LVMH is the world’s largest luxury goods group, owning brands such as Louis Vuitton, Tiffany & Co., and Hennessy. The group reported a second-quarter sales growth to €20.98 billion (US$22.8 billion) with a natural growth rate of 1% (excluding currency effects and acquisitions).
Compared to the 3% year-on-year growth in the first quarter and double-digit growth achieved in 2023, LVMH’s sales figures for the second quarter fell short of the €21.6 billion revenue expectation as indicated by the survey of six analysts from the London Stock Exchange Group (LSEG).
As a leader in the industry and Europe’s second-largest listed company valued at approximately €340 billion, LVMH recorded an operating profit of €10.65 billion in the first half of the year, with an operating margin of 25.6%, lower than the 27.4% from the same period last year. This operating profit also fell below the expected €11.11 billion and 26.2% profit margin according to data from Visible Alpha.
The fashion and leather goods division of LVMH saw a 1% growth compared to the previous quarter’s 2% increase, with Louis Vuitton and Christian Dior accounting for nearly half of the group’s sales and a significant portion of operating profits.
Amid a slowdown in the luxury goods industry, LVMH’s stock prices have fluctuated significantly, dropping around 20% over the past year due to a sluggish Chinese economy and soft consumer spending. The cautious attitude of the rising middle-class consumers towards expensive products has led to a belt-tightening trend in China.
Prior to the release of this report, smaller brands like Burberry and Hugo Boss also issued profit warnings last week. Brands like Burberry and Versace have offered substantial discounts of up to 50% on luxury items on Chinese e-commerce platforms. Burberry, for instance, reported retail revenue of £458 million (US$594 million) for the three months ending June 29, down from £589 million in the same period last year.
Analyst Piral Dadhania from RBC Bank in Canada commented that the LVMH group’s performance did not come as a “nasty surprise.”
In the second quarter, sales in Asia (excluding Japan) for LVMH dropped by 14%, a further deterioration from the 6% decline in the first quarter. However, Japan’s sales continued to rise, with tourists taking advantage of the weakened yen for travel opportunities.
Jean-Jacques Guiony, the CFO of LVMH, mentioned in a conference call with analysts that forecasting the Chinese market remains challenging. He noted the continued interest of Chinese tourists, particularly those visiting Japan, in the group’s brands, hinting at sustained interest despite economic challenges.
Regarding U.S. operations, he added that the situation with European customers was “slightly better.” However, he highlighted the significant pressure on profit margins from the surge in Japan sales.
Kering, the owner of Gucci, will announce its first-half performance on Wednesday, and Hermès will disclose its first-half results on Thursday.