Despite the reputation of the luxury sector as a safe haven in the investment world due to the reluctance of its clientele to tighten their belts, this time, Louis Vuitton Möet Hennessy (LVMH), the second most valuable company in Europe behind of Novo Nordisk and the largest luxury company in the world with 75 high-end brands under its umbrella, has not managed to avoid the problems that the Chinese economy is going through. As a result of this lower appetite in the Asian giant for expensive bags, for the first time since the pandemic, sales of its star segment, fashion and leather, have been reduced in a quarter when compared to that of the previous year.
As detailed by the company itself in a presentation published this Tuesdaythe evolution of fashion and leather in terms of organic sales, a way of measuring performance that the group uses by eliminating the effect of currency exchange from the equation, shows a drop of 5% to 9,151 million euros compared to the income of 9,750 million in the third quarter of 2023. Factoring in the currency effect, its decrease is 6.14%. In global terms, that is, adding the rest of the segments in which LVMH operates (alcohol and beverages, jewelry and watches, stores and perfume and cosmetics) the group has closed the third quarter with a moderation of 3% in its organic sales, leaving total income at 19,076 million euros. The consensus of analysts gathered by Bloomberg I expected a slight increase.
Of all the segments, the only ones that have grown are perfumery and makeup, with a rebound in organic sales of 3%, and the stores operated by the group, mainly Sephora, which has improved 2% compared to with the third quarter of 2023. Watches and jewelry (-4%) and alcohol and beverages (-7%) have also not escaped weakness.
By geography, Asia excluding Japan, the group’s main source of income (29% of all the income that LVMH obtained during the first nine months of 2024 came from there) and the region in which the company includes China, suffered a decrease of organic sales of 16% in interannual terms. Not only has the comparative effect played against it, since the reopening after the covid meant a boom in consumption there, but also, the Asian giant is going through moments of economic uncertainty due to a real estate crisis and weak growth that has forced the Chinese government to announce a series of stimulus measures.
In the United States, another large market from which LVMH has derived around 25% of its revenue in the first nine months of the year, organic sales have remained stagnant. In Europe, a market with a similar weight to the United States for the company, they rose 2% on the back of a greater buying appetite due to the Olympics and Paralympics. The only region with a more than notable performance has been Japan, an area that accounts for 9% of all LVMH sales. There, the growth has been 20%.
The numbers, published with European markets already closed, have been poorly received by LVMH depositary shares in the United States. With an hour and a half to go until Wall Street closes, shares fell 6.4%.
Despite the weakness in China and the poor reception of the market, LVMH is optimistic. “In an uncertain economic and geopolitical landscape, the group remains confident and will continue to advance its strategy focused on continually increasing the attractiveness of its brands, designing authentic and quality products, bringing excellence to its distribution and maintaining an agile organization,” the company has stated in a press release. “LVMH will use its powerful brands and the talent of its team to reinforce its global leadership in luxury products once again in 2024,” he predicted.
