Lower sales of spirits and handbags hit LVMH growth

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Luxury goods group LVMH’s sales growth slowed in the third quarter as demand for handbags slowed, while demand for spirits fell after several years of strong growth.

The French group controlled by Bernard Arnault said third-quarter sales rose 9% to 19.9 billion euros, down from a 17% increase in the previous quarter, reflecting weak luxury sales globally, especially in the United States and Europe.

Sales in Asia (excluding Japan) rose 11% in the quarter, down from 34% in the previous three months, while the U.S. continued a low-single-digit growth trend earlier this year as aspirational consumers scale back expenditure. LVMH Chief Financial Officer Jean-Jacques Guiony said that in Europe, most countries are currently experiencing growth rates in the mid-single-digit range.

Guiony said there was “no significant change in our business with Chinese customers” in the latest quarter, but noted that people are traveling abroad more and may be shopping there.

However, in Europe, “there was a slight decline in the third quarter compared with mid-single-digit growth in the first half,” he said. . Time will tell, depending on the depth and length of the cycle, whether this is consumption or just a blip after three extraordinary years.”

Sales at LVMH’s largest fashion and leather goods division grew 9% in the third quarter, down from 21% growth in the second quarter. Selective distribution (including travel retail and Sephora) grew the fastest this quarter, reaching 26%.

However, wine and spirits sales fell by 10%, which LVMH said was related to the normalization of demand after the new crown epidemic and the more difficult economic environment in the United States, especially the sales of cognac.

“In an uncertain economic and geopolitical environment, the group is confident in its continued growth… LVMH relies on the dynamism of its brands and the talent of its teams to further consolidate its leading position in the global luxury market in 2023.”

The overall figure was lower than Visible Alpha’s consensus forecast for 11.5% sales growth in the current quarter for LVMH, which owns 75 brands including fashion houses Louis Vuitton, Dior and beauty retailer Sephora.

LVMH is by far the largest group in the luxury goods industry and is seen as a bellwether given its size and influence. Luxury goods companies had reported slower growth last quarter in the United States, the industry’s biggest market. Tightening economic conditions in China have been driving record sales in the luxury goods industry since the beginning of 2020, and have laid the foundation for the industry to experience more moderate growth.

“We expect growth to broadly normalize in the third quarter, with demand from locals in Europe normalizing and less support from the travel industry,” HSBC analysts wrote. “Despite facing an easier basis of comparison, U.S. Performance is unlikely to improve.

“China (also) faces a stricter basis for comparison and an unsupportive macro environment, which may lead to a sequential economic slowdown,” they warned.

“Contrary to past quarters (e.g. Q2), where the US downturn was offset by a rebound in China, this time we do not see any compensating factors; instead there will be broad normalization of growth across all regions,” HSBC Banks wrote.

Shares in LVMH have risen about 20% in the past 12 months, despite falling about 12% in the past six months, as investors worry that the luxury craze has faded.

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