LVMH Results May Mean An End To Luxury's 3-Year Party

The latest quarterly results from LVMH, parent of Louis Vuitton, Tiffany and Dior, sent jitters through the luxury sector. Overall, company sales climbed 9% for the quarter after currency adjustments, when luxury insiders expected gains of 11%. But news of the conglomerate’s slowing growth in Europe and China, weakness in the U.S., and a downturn in wine and spirits also set alarm bells off throughout the entire category.

The company is coming off several quarters of solid growth and three years of robust expansion. So, while it is still putting up enviable numbers, the third-quarter results seemed alarmingly low by comparison. Sales in Asia (excluding Japan) rose just 11%, compared to 34% in the previous quarter, as much of China reopened, for example. And sales in Europe were up 7%, down from a 19% jump in the last quarter.



In the U.S., sales added 2%, an improvement over last quarter’s 1% decline. In a conference call webcast for investors, Jean-Jacques Guiony, LVMH’s chief financial officer, said that those U.S. results “improved marginally a little bit across the board, doing better in fashion, watches and jewelry -- and, unfortunately, not in cognac.”

Weakness in cognac in the U.S. and China dragged sales in the wine and spirits division down 14%. Watch and jewelry sales slowed to a gain of just 3%, compared to 14% in the previous quarter.

Fashion and leather goods sales rose 9%, as did results in perfumes and cosmetics. In the selective retailing division, which includes Sephora and Bon Marche, sales again achieved an impressive 25% increase.

Guiony said differences in spending between aspirational shoppers -- under more economic pressure -- and wealthy individuals, are consistent across divisions and geographies, as well as previous quarters.

“Overall, the report reiterated previous indications of a slowing luxury sector, with incrementally negative takeaways on domestic European demand,” writes Mark Altschwager, an analyst at Baird. While Baird does not cover LVMH, it follows Tapestry, Coach's parent, and Capri Holdings, owner of Michael Kors, Versace and Jimmy Choo. (Tapestry’s acquisition of Capri is expected to close next year.)

“Bigger picture, we remain cautious on the North American demand backdrop for the remainder of 2023 and into 2024 given challenged consumer spending power, which we expect will limit upside to management guidance near-term.”

In June, Bain & Company projected the luxury goods market would grow between 5% and 12% in 2023 despite uncertain economic conditions.

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