LVMH’s China letdown points to prolonged luxury industry pain

LVMH's Paris-listed shares were down 1.5% by 0850 GMT, trading near their lowest price in more than six years. (AFP pic) PARIS: LVMH's quarterly fashion and leather goods sales miss, driven by weak demand in China for its flagship Louis Vuitton brand, has raised fresh doubts that the US$350 billion luxury industry may emerge from a three-year slowdown anytime soon.

A year ago LVMH, the world's biggest luxury firm, reported signs of slightly better Chinese demand, triggering a sharp rally across the entire luxury sector — but today there are signs of a longer, deeper decline.

Its Paris-listed shares were down 1.5% by 0850 GMT, trading near their lowest price in more than six years.

Europe's leading luxury groups have lost around €330 billion (US$369.1 billion) in market value since the start of the year, with LVMH alone shedding roughly 40%.

"Despite the recent share price weakness, we expect some further pressure on the space as a whole today, with confirmation that the Chinese cluster seems to have taken a material (and bigger than feared) step down", JPMorgan analysts said in a note to clients.

China emerged nearly two decades ago as the main growth engine for the luxury sector, but sales have been sluggish since the end of a post-pandemic boom as weak growth and a property sector crisis trickle down to shoppers. A tax crackdown on the wealthy is the latest headache for brands.

Five sell-side analysts have cut their target price on LVMH shares by an average 7% following the results, the first quarterly report by a major sector player, expecting the miss to also signal weak performance at some of its competitors.

Shares in luxury groups Hermes, Kering and Richemont were also down between 1% and 2.2% on Tuesday.

Recovery to take some time, says CFO

LVMH on Monday posted a 5% drop in organic sales at its fashion and leather goods division, which generates nearly half of group revenue, missing expectations in a Visible Alpha consensus for a 1.8% decline.

The group said a "less buoyant environment" in China had impacted its revenues, contributing to 1% organic sales growth overall, excluding currency swings, to €18.5 billion (US$20.68 billion), below expectations for 1.3% growth.

Asia, dominated by China, accounts for over a quarter of the group's total sales.

Asked about Louis Vuitton's recovery prospects in a call with analysts, the group's Chief Financial Officer Cecile Cabanis said: "It takes a bit of time, but I don't think there are a lot of shortcuts here".

Cabanis said the brand has so far avoided drastic moves such as price cuts, choosing to focus on longer-term initiatives.

Adding to investor concerns, growth in LVMH's watches and jewellery division, home to brands including Bulgari and Tiffany, slowed to 6% from 9% in the first half of the year, marking a changing trend in one of luxury's few bright spots.