LVMH Sales Growth Stumbles Amid Chinese Spending Slowdown

LVMH, the world's largest luxury group, saw a slowdown in sales growth in the second quarter, largely due to reduced spending by Chinese shoppers. Despite a slight increase in demand from Western markets, overall sales grew by just 1%, missing analysts' expectations. The luxury sector faces challenges as economic uncertainties loom.

LVMH, the world's largest luxury group and owner of renowned brands like Louis Vuitton, Tiffany & Co., and Hennessy, experienced a deceleration in sales growth during the second quarter. Chinese shoppers, often a key demographic, have curtailed their spending on luxury goods, resulting in a modest 1% rise in sales on an organic basis, which excludes currency effects and acquisitions. This marks a slowdown from the 3% growth observed year-on-year in the first quarter, and starkly contrasts with the double-digit growth seen in 2023 as Chinese consumers emerged from pandemic lockdowns.

The report from sector leader LVMH, Europe's second-largest listed company, valued at around 340 billion euros, came after profit warnings from smaller luxury labels Burberry and Hugo Boss. Despite expectations for revenues of 21.6 billion euros, LVMH's sales fell short, recorded at 20.98 billion euros according to an LSEG poll. However, analysts suggest this shortfall was anticipated. Luca Solca, an analyst at Bernstein, stated, 'All in all, this shouldn't be an insurmountable problem, given the minimal size of the miss and the significant pullback the LVMH share price has suffered since the initial post 4Q23 reporting euphoria.'

Over the past year, LVMH shares have been volatile, decreasing by about 20%. Concerns arise from middle-class shoppers in China, the world's second-largest economy, pulling back due to a property slump and job insecurity. The group's sales in Asia, excluding Japan, fell by 14% in the second quarter, worsening from a 6% drop in the first quarter. Nevertheless, sales in Japan, boosted by tourist spending, continued to grow. CFO Jean-Jacques Guiony noted the difficulty in predicting the Chinese market yet highlighted ongoing strong interest from Chinese travelers. In contrast, business with U.S. and European customers showed slight improvement. LVMH's operating profit for the first half was 10.65 billion euros, with a decreased operating margin of 25.6%, and its fashion and leather goods division saw a slight growth of 1%. Competitors Kering and Hermes are set to report their results soon, which may provide further insights into the luxury market's trajectory.

(With inputs from agencies.)