LVMH is suffering from reduced buying appetite in China: sales rose just 1% last quarter due to 14% lower sales in Asia. “A small miss,” analysts nuance.
Lower profits too
China, a long-time growth engine of the luxury industry, is sputtering. Middle-class consumers are spending less due to the country’s economic slowdown, and European fashion houses are feeling the effects. After profit warnings at Burberry and Hugo Boss, LVMH now also admits disappointing results.
Sales stagnated in the second quarter on 1% organic sales growth, to 20.98 billion euros. A quarter earlier, growth was 3% and analysts expected the same now. Operating profit slumped to 10.7 billion euros in the first half, mainly due to pressure on the drinks and accessories divisions. However, Bernstein analyst Luca Solca said the profit fall was mainly due to exchange rates and investments in retail.
Japan rebounds
With the exception of Japan, sales in Asia fell 14%. Japan saw a rebound, courtesy of the weak yen, which attracts many tourists to the country. Chinese are also flocking there eagerly – even to buy Louis Vuitton and Dior. Similarly, sales were better in Europe and the US.
In the second half of the year, LVMH expects stronger growth, although the group remains cautious. In the Financial Times, Solca says the first half of the year “shouldn’t be an insurmountable problem, given the minimal size of the miss”.
