LVMH Reports Slower Growth as Post-Pandemic Spending Eases
Luxury Goods Giant LVMH Sees 9% Rise in Q3 Revenue
LVMH, the luxury goods bellwether, announced a 9% increase in third-quarter revenue, signaling a slowdown in growth as post-pandemic spending subsides due to inflation and economic uncertainty. The company’s chief financial officer, Jean-Jacques Guiony, acknowledged the shift, stating that LVMH’s growth is now aligning with historical averages after several exceptional years.
Strong Performance of Fashion and Leather Goods Division
LVMH, the parent company of renowned brands such as Louis Vuitton, Dior, Tiffany, and Bulgari, reported revenue of €19.96 billion ($21.16 billion), a 9% year-on-year increase, excluding currency fluctuations and acquisitions. However, the overall revenue growth was modest at 1%. The fashion and leather goods division, which includes Louis Vuitton and Dior, recorded a 9% sales growth, slightly below analysts’ expectations of 10%.
Challenges in the US and Europe, Uneven Recovery in China
LVMH is facing a slowdown in demand for high-end goods in the United States and Europe, primarily driven by rising prices. Younger generations, in particular, are scaling back on their post-pandemic spending spree. While the recovery in China has been inconsistent, Guiony noted that the demand for fashion and leather goods from China remains steady, with more purchases being made outside the mainland as travel resumes. In the United States, there has been minimal change in consumer trends.
Decline in Wines and Spirits Division
The wines and spirits division experienced a 14% decline in revenue during the quarter. LVMH attributed this decline to decreased demand for Champagne and a slower-than-expected recovery in China, affecting the sales of Hennessy cognac. This performance indicates the challenges faced by the luxury industry amid the ongoing economic volatility.
Implications for the Luxury Sector
LVMH’s earnings report provides valuable insights for investors and sets expectations for other luxury brands. Hermes and Kering are scheduled to report their earnings on October 24th. Analysts believe that LVMH’s performance is satisfactory, considering the difficult comparison period with the strong performances in China, the United States, and Europe last year. However, the luxury sector has witnessed a decline in investor expectations, resulting in a significant market derating for LVMH since April.
Impact of Currency Exchange Rates
LVMH also faced challenges related to currency exchange rates. The strength of the euro against the U.S. dollar compared to the previous year affected the company’s U.S. sales when converted back into its home currency. The negative impact of currency fluctuations was more severe than anticipated. Guiony expects this to impact margins in the second half of the year, although hedging strategies will partially offset these effects.
Overall, LVMH’s latest earnings report reflects the changing dynamics in the luxury goods market. With a slowdown in post-pandemic spending and economic uncertainties, the industry is navigating new challenges while striving to maintain growth and meet consumer demands.