LVMH shares slumped as a sluggish economy deterred some US shoppers from buying its high-end clothes and handbags in the second quarter, offsetting a rebound in China.
(Bloomberg) — LVMH shares slumped as a sluggish economy deterred some US shoppers from buying its high-end clothes and handbags in the second quarter, offsetting a rebound in China.
Revenue fell 1% in the US on an organic basis, the company said Tuesday, the only region that showed a drop. Sales at the luxury group’s biggest unit, which includes labels such as Louis Vuitton and Celine, jumped 21%, meeting analysts’ estimates.
LVMH shares fell as much as 4.1% in early Paris trading Wednesday. They’re still up 21% for the year to date.
The slowdown in the US particularly affected aspirational customers who splurged less on entry-level luxury products, Chief Financial Officer Jean-Jacques Guiony told reporters. The trend was pronounced online and in smaller cities, he said.
“The global mood isn’t for the revenge buying that we experienced in 2021 and 2022, so we’re talking more about normalization” of demand for luxury goods overall, Guiony said.
Led by billionaire Bernard Arnault, LVMH follows Cartier owner Richemont and Burberry Group Plc in reporting weaker demand in the US during the period. EssilorLuxottica SA, the French-Italian owner of the Ray-Ban and Oakley sunglasses, also on Tuesday posted North American revenue that fell short of estimates.
LVMH has weathered the US slowdown better than its peers. The group benefits from a bigger global footprint and a wide array of brands spanning Moet & Chandon to Tiffany & Co.
Read more: EssilorLuxottica Global Sales Beat Consensus as Americas Lag (1)
The results hint “at a first step to normalization,” Luca Solca, analyst at Sanford C. Bernstein wrote in a note. “The transition is likely going to produce some turbulence,” but “in the absence of a hard landing recession, the sector should soon find an even keel.”
The group also also been charging more, with Christian Dior earlier this month increasing prices by 4% on average globally, following a similar move by Louis Vuitton last month, Guiony said.
Marketing Costs
Still, first-half profit from recurring operations slightly missed expectations, coming in at €11.6 billion ($12.8 billion) compared with analysts’ average estimate of €11.8 billion.
LVMH incurred significant marketing costs in the first half, Guiony added, due to high-profile fashion shows, notably at Christian Dior and Louis Vuitton, with Pharrell Williams’ menswear debut last month in Paris. The spending was higher than usual and Guiony said he expects it to be lower in the second half.
Read More: Pharrell Unveils His Louis Vuitton Vision in Bold Arnault Bet
Sales at all divisions grew by double digits in the second quarter, except for the wines and spirits unit, which was hurt by weaker demand for its Hennessy Cognac in the US. Guiony told analysts the worst is probably over with US demand for that spirit likely to have bottomed out.
When it comes to Chinese shoppers, Guiony said they’re buying increasingly outside of their country, but in regional tourist destinations rather than further afield. Organic sales in Asia excluding Japan soared 34% in the second quarter.
Europe is seeing the return of wealthy Chinese tourists who are traveling independently rather than in groups, as was common before Covid, he added, explaining that it’s impossible to predict when larger numbers of Chinese tourists will return to Paris or Milan.
The results were a mixed set, according to Jie Zhang, analyst at AlphaValue, adding that visibility for the rest of the year remains low, notably due to uncertain macro-economic environment in China.
(Updates with share price, CFO, AlphaValue analyst comments)
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