- Like-for-like quarterly sales down
- All main categories disappoint
- China the main cause of weakness
Paris-based LVMH (MC:EPA), the luxury group which includes fashion brands such as Louis Vuitton, Kenzo, Givenchy, Christian Dior and Bulgari, not to mention champagne brands Moet Hennessy and Veuve Clicquot, stunned the market with third-quarter revenue which missed estimates due to a slowdown in demand, due mainly to China.
The shares, which not long ago were hitting all-time highs above €900, slid another 4% or €25 to a 12-month low of €600, dragging with them shares in other European luxury goods stocks.
WEAKNESS ACROSS THE BOARD
The group, regarded as a bellwether for the global luxury industry, reported a 3% drop in like-for-like sales in the three months to September, undershooting even the most pessimistic forecasts.
Particularly worrisome for analysts and investors was the 5% drop in fashion and leather goods, which makes up half of sales, and the 4% drop in watches and jewellery, its third-largest category.
The firm tried to brush off concerns over a slowdown in demand by pinning the decline in overall third-quarter sales on lower growth in Japan due to the stronger yen, but it was noticeable that in every category bar perfumes and cosmetics – its smallest business – third-quarter sales were lower than both the first and second quarters, suggesting the challenges facing the group are more fundamental in nature.
CHINESE CONSUMERS NOT SPENDING
Indeed, while quarterly organic revenue growth was steady at low single-digits in Europe and the US, the trend in Asia excluding Japan seems to be deteriorating having slipped from minus 6% in the first quarter to minus 14% in the second quarter and minus 16% in the third quarter.
‘The main culprit is China’, says Bloomberg’s Andrea Felsted, ‘where demand has deteriorated markedly over the past three months as confidence has sunk to Covid-era lows.’
Sales of fashion and leather goods to mainland Chinese consumers fell by a percentage in the mid-single digits in the third quarter, notes Felsted, whereas in July the firm’s chief financial officer was predicting to mid- to high-single digit growth.
