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Revenue from LVMH’s fashion and leather goods division fell 5 per cent to €9.15 billion in the third quarter, the luxury conglomerate said on Tuesday.
“Louis Vuitton [is] a little bit above the [division] average, Dior is a little bit below,” said LVMH chief financial officer Jean-Jacques Guiony in an earnings call. Group sales were down 3 per cent, to €19.08 billion in the third quarter.
It’s a clear slowdown compared to the first half of the year, when the fashion division’s sales were up 2 per cent in Q1 and 1 per cent in Q2. “There were misses across the board with the group printing -3 per cent organic growth versus consensus at 0.9 per cent. The worst performers were fashion and leather goods, which came in at -5 per cent relative to expectations of 0.5 per cent,” Bernstein luxury goods analyst Luca Solca wrote in a note.
Guiony cited economic challenges in all markets and weak consumer confidence in Mainland China, “which is back in line with the all-time low reached during Covid”. “We cannot expect discretionary consumption to expand in this context. However, the strength of Chinese demand in the first half of the year provides recent evidence of the enduring appetite of the Chinese customer for luxury,” he told analysts. LVMH bets on product innovation and cost adjustment to weather the slump.
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LVMH is typically a bellwether for the luxury industry. Kering and Hermès are to report their Q3 earnings on 23 and 24 October, respectively, while Richemont is to report its fiscal first half on 8 November. Ferragamo reported sales down 7.2 per cent, declining 9.8 per cent in the first nine months of its fiscal 2024. “We see LVMH as the weakest among the quality names (Richemont we believe will be better, Hermès will be best), hence we would recommend investors to buy in steps at the lower end of the trading range,” Solca wrote.
By division, selective retailing, which includes beauty retailer Sephora, luxury travel retailer DFS and Paris department store Le Bon Marché, was up 2 per cent, perfumes and cosmetics were up 3 per cent and watches and jewellery were down 4 per cent. By region, Asia (excluding Japan) was down 16 per cent, the US was flat, Europe was up 2 per cent and Japan was up 20 per cent year-on-year.
Guiony dismissed any causal link between the current global luxury slowdown and the price increases implemented over the years: “There are not that many products that we sell today that were active in 2019. We have changed a lot of the product range. So price comparison is not that easy. And when it comes to increasing prices, actually it’s more a mix impact than a price impact. Secondly, all the players have done the same. Do you really think that if we had not increased prices the way we’ve done, we would be faring double digits today? I don’t think so [...] So we are not necessarily having the view that we should change strategies [or] the offer drastically, to address the current situation.”
The current downturn is cyclical, he insisted. “We are still very strong believers in the future of luxury, in the future of the emergence of the upper middle class in China and elsewhere,” Guiony said. “And we see absolutely no reason why after a cyclical downturn, as we are experiencing today, we shall not be in a position to recover.”
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