LVMH Moët Hennessy Louis Vuitton (LVMUY, Financial), the global luxury leader, reported its weakest quarterly performance since the onset of the global pandemic in 2020, with a 3% drop in third-quarter overall sales. This decline was marked by a fall in fashion and leather goods sales, including key brands like Louis Vuitton and Christian Dior, which saw a 5% decrease in organic revenue, contrary to analysts' expectations of a slight increase.
Under the leadership of Bernard Arnault, one of the world's wealthiest individuals, LVMH manages around 75 luxury brands spanning fashion, jewelry, hotels, and spirits. All major segments of the Paris-based group failed to meet analyst expectations in the third quarter.
Following the earnings release, LVMH's American Depositary Receipts fell sharply by 10% during trading before closing with an 8% loss. This decline also affected the U.S. shares of competitors such as Ralph Lauren and Estee Lauder, as well as Gucci's parent company, Kering (PPRUY).
The downturn in Chinese consumer demand, which previously seemed insatiable for high-end products, was a significant factor in LVMH's poor performance. LVMH's CFO, Jean-Jacques Guiony, highlighted the demand challenges in most of their markets, including mainland China. RBC Capital Markets analyst Piral Dadhania noted that the results indicate a larger-than-expected economic slowdown.
Chinese consumers have become more cautious in spending on luxury goods due to concerns over slowing economic growth and the real estate market. This cautiousness led the Chinese government to introduce measures to stimulate the economy last month. However, Guiony mentioned the difficulty in assessing the impact of these measures on demand.
In the third quarter, LVMH experienced a 16% drop in organic sales in the Asian region, including China, exceeding expectations. The group's resilience to cooling Chinese demand appears to have faltered significantly this quarter. Additionally, sales in Japan underperformed due to a stronger yen affecting Chinese consumer spending there. The U.S. and European markets also showed disappointing results.
The pandemic-era surge in luxury sales has waned, particularly impacting brands targeting aspirational consumers. Higher-end brands like Hermes International, which will release its quarterly sales next week, previously managed to withstand the downturn better.
