- Organic growth slows to 9%
- Fashion and leather goods sales miss expectations
- But LVMH remains ‘confident’ of continued growth
Shares in LVMH (MC:EPA) lost 7% to trade at €684.2 in early dealings on 11 October after the globe’s biggest luxury goods group posted a third quarter sales growth slowdown as the post-pandemic luxury spending boom continues to fade.
LVMH has struggled to lure well-heeled Chinese consumers back to its boutiques following the lifting of China’s strict lockdown restrictions, while US growth continues to moderate after a strong couple of years.
In the post-results conference call, management also warned that European consumers are spending less, news that dragged rivals including Richemont (CFR:SWX), Hermès (RMS:EPA) and Burberry (BRBY) lower on the negative read-across.
FASHION AND LEATHER GOODS FALL SHORT
The luxury goods bellwether behind brands including Louis Vuitton, Dior, Bulgari and Tiffany, LVMH generated a 9% organic sales increase to €19.96 billion for the quarter.
That was below the €20.74 billion called for by consensus and marked a significant slowdown from the 17% growth seen in the preceding quarter as high inflation and economic uncertainty weighed on demand for high-end goods.
Sales rose 9% in the fashion and leather goods division, the French conglomerate’s largest division which includes the Louis Vuitton and Christian Dior labels, but this was below the 21% growth delivered in the second quarter and shy of analysts’ estimates for the second successive quarter.
FRP Advisory up 10% after full-year earnings beat expectations
Revenues at the wines and spirits unit tumbled by a worse-than-expected 14% which LVMH pinned on tough comparatives, a post-Covid normalisation of demand and a challenging US market for Hennessy cognac.
The standout division was selective retailing, which includes make-up purveyor Sephora and the luxury travel company DFS, where quarterly sales ticked up by an impressive 26%, roughly in line with previous quarters.
ARNAULT CONFIDENT OF CONTINUED GROWTH
Despite disappointing third quarter sales and the uncertain economic and geopolitical environment, LVMH said it is ‘confident’ in the continuation of its growth and will ‘maintain a strategy focused on continuously enhancing the desirability of its brands, drawing on the authenticity and quality of its products, excellence in distribution and agile organization’.
Controlled by billionaire Bernard Arnault, the company insisted it will ‘draw on its powerful brands and the talent of its teams to further strengthen its global leadership in the luxury goods market in 2023.’
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould commented: ‘Yesterday’s weaker-than-expected results from LVMH were putting significant pressure on the stock today and, given the huge weighting afforded to the luxury goods firm, this acted as a drag on European markets.
‘The luxury sector is often seen as being relatively insulated from fluctuations in the economy but expectations and valuations had become very elevated. A big issue is the failure of Chinese demand to return in the way which was anticipated after the country eased its zero-Covid restrictions.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.
