LVMH’s growth is impacted by lower sales of handbags and spirits

LVMH’s sales growth slowed down in the third-quarter as handbag demand moderated, and spirits declined after years of explosive growth.

The French group controlled by Bernard Arnault said that sales increased 9 percent in the third quarter. This is down from an increase of 17 percent in the previous quarter. This is due to softer luxury sales globally, particularly in the US.

Aspirational consumers cut back on their spending, resulting in a decline in sales in Asia, excluding Japan, of 11 percent in the third quarter. This is down from the 34 percent growth in the previous three-month period. According to LVMH Chief Financial Officer Jean-Jacques Guiony, the majority of countries in Europe are now growing at a mid-single-digit rate.

Guiony stated that there was “no significant change” in business with Chinese clients in the last quarter. However, he did note that more people are travelling overseas and may be shopping abroad.

In Europe, he said that “we’ve experienced slight drops in Europe in comparison to the mid-single-digit growth we saw in the first half the year.” . . Time will tell, depending upon the depth and length of the cycle, if it was [a] change in consumption or just a blip following three extraordinary years”.

LVMH’s largest division, fashion and leather goods, saw sales grow 9 percent in the third-quarter. This is a slower rate than the growth of 21 percent in the second-quarter. Selective distribution (which includes Sephora and travel retail) had the highest growth of 26 percent this quarter.

LVMH attributed the decline in wine and spirit sales to a normalisation of the demand after the Covid event and a tougher economic climate in the US. This was particularly true for sales of cognac.

“In an uncertain geopolitical and economic environment, the group believes in its continued growth. . . LVMH will rely on its brands’ dynamism and the talent of their teams to strengthen its leadership in the global market for luxury in 2023,” said the company.

Visible Alpha’s consensus estimate for LVMH sales growth was 11.5 percent in the third quarter. The company owns 75 brands, from fashion houses Louis Vuitton to Dior and beauty retailer Sephora.

LVMH, the largest group in the luxury sector by far, is regarded as a bellwether due to its size and influence. Last quarter, luxury companies reported a slower pace of growth for the US market, which is the largest in the industry. The tighter conditions in China have set the stage for a more moderate growth for the luxury sector.

Analysts at HSBC wrote: “We expect a wide-based growth to normalise in the third quarter. Demand from European locals will normalise, while tourism flows are expected to be less supportive.” “The US performance is unlikely to be better despite a more favorable comparison.

They warned that “China [is] also facing a harder basis for comparison and the macro-environment is unsupportive leading to a likely sequential slowdown.”

“Unlike past quarters, such as Q2, when the sluggishness of the US was more or less offset by a rebound from China, we don’t see any compensating factors this time; rather, a generalised normalisation in growth across all geographical areas,” HSBC wrote.

Investors worried about the luxury boom have risen shares in LVMH by 20 percent in the last 12 months, despite a drop of 12 percent in the previous half-year.