LVMH disappoints in the second quarter: The growth of the luxury giant slows down

The revenue growth of the French luxury conglomerate LVMH slowed in the second quarter and fell short of expectations, as demand for high-priced goods wanes after a multi-year boom. The revenues of the world's largest luxury company, which operates brands such as Louis Vuitton, Dior, and Tiffany, increased by 1 percent on an organic basis to 20.98 billion euros in the three months to June. This represents a slowdown compared to the first quarter and falls below consensus estimates, which anticipated a 3 percent rise. Particularly noteworthy is the development in the closely-watched fashion and leather goods division, the company's largest in terms of revenue and profit. Here, organic sales grew only by 1 percent in the second quarter, while operating profits declined by 6 percent. The group's operating profits in the first half of 10.7 billion euros also fell short of expectations, compiled by analysts from Stifel. Pressure was especially felt in the wine and spirits divisions as well as in the watches and jewelry sectors. "The results for the first half reflect the remarkable resilience of LVMH," said CEO Bernard Arnault. "Although we remain vigilant in the current context, we confidently look forward to the second half of the year and will rely on the agility and talent of our teams to further strengthen our global leadership position in the luxury segment in 2024." Champagne sales declined but remained above 2019 levels, the company stated. Weak cognac sales in the subdued Chinese market were partially offset by growth in the US. The selective retailing segment, which includes travel retail and the cosmetics retailer Sephora, was a bright spot, growing by 5 percent in the second quarter. LVMH, which had a market capitalization of about 333 billion euros as of Tuesday, is considered a key indicator for the industry due to its size and the fact that it encompasses over 75 companies in the luxury segment. While the industry slowed over the past year, LVMH remains in a middle position, as struggling companies like Kering and Burberry lag behind, whereas high-end brands like Hermès and Brunello Cucinelli benefit. LVMH shares have fallen by about a fifth in the past year and are trading at 692 euros per share, reflecting declines across much of the industry. Among the luxury groups that have reported this quarter so far, several have highlighted weak demand in China. Richemont, the owner of the jewelry brand Cartier, reported roughly flat sales in the most recent quarter, with growth in the US and Europe offsetting sharp declines in China. According to Rogerio Fujimori of Stifel, LVMH's outlook for the second half of the year will remain cautious, particularly regarding China, reflecting the sentiment across the industry. However, he expects stronger growth in the second half "due to a comparatively easier base in China and Europe, but visibility is limited." The weaker demand in China is indeed noticeable, even as the wealthiest clientele continue to travel abroad to shop. The world's second-largest economy has served as a growth engine for the luxury market for much of the past decade, even in the face of strict Covid lockdowns.