European recovery helps LVMH weather China lockdowns

A tourist boom in Europe and resilient US sales helped LVMH, owner of Louis Vuitton, post higher-than-expected revenue for the second quarter, offsetting a drop in its Chinese business after strict Covid-19 lockdowns began to take their toll.

However, momentum at the French group still slowed from one quarter to the next after the setbacks in China, the luxury goods industry’s second-biggest market.

Revenues reached €18.4bn, up 19 per cent year on year when stripping out the effect of acquisitions and currency swings — higher than the average 11 per cent forecast by analysts, but below the 23 per cent rise notched up three months earlier.

The world’s biggest luxury group said it was encouraged by buoyant demand elsewhere, however, including in South Korea and Singapore, despite an 8 per cent drop in sales for the Asia region as a whole when excluding Japan.

“We were strongly affected by China, there was a sharp slowdown and there’s no miracle cure,” chief financial officer Jean Jacques Guiony told the Financial Times. He added that there was a “big question mark” over the outlook for that market, and “nothing that allows us to predict whether those hard lockdowns will come back or not”.

But a bounceback in other countries was helping the industry, Guiony added, including in Europe where a return of American tourists and a strong dollar was encouraging spending in shopping capitals like Paris and Milan.

Guiony said LVMH, usually one of the top performers in the luxury goods sector, was “optimistic, confident and vigilant” all at once, despite potential headwinds.

On top of an uncertain period ahead for China, fears of a US recession are still swirling, and inflation is spiralling worldwide into a growing challenge for manufacturers. In the luxury goods industry, that includes higher transport costs or rising raw material prices such as for gold.

But high-end brands have long had a greater capacity to pass on price rises to consumers, and LVMH, home to spirits brands like Hennessy and fashion labels Christian Dior and Fendi, has followed suit this year across items from cognac to handbags.

It posted higher operating profits and margins for the first half of 2022, with core earnings up 34 per cent from a year ago to €10.2bn, while net profit came in 23 per cent higher at €6.5bn.

Harry Barnick, a senior analyst at research company Third Bridge, said LVMH’s resilience in spite of its Chinese woes may not necessarily be replicated at rival groups, including France’s Kering, which is behind brands like Gucci and Saint Laurent.

“LVMH has a more balanced portfolio and is better at adapting to local markets,” Barnick said, adding that Gucci was more exposed to Asia.

LVMH’s results come after the group’s 73-year-old chief executive and top shareholder, billionaire Bernard Arnault, last week changed the structure of his family holding company Financière Agache, a step seen as paving the way towards his eventual succession.

Agache was turned into a joint-stock partnership known as a commandite, which allows owners to sell down the share capital while retaining iron-clad control over the company. A handful of family-backed French companies have similar commandite structures such as Hermes and Michelin.

The new holding company will be held equally by Arnault’s five children — who all have jobs at LVMH — and give them long-term control over the company, in a structure with lock-up clauses and rules on decision-taking. The family has 48 per cent of LVMH and 63.5 per cent of voting rights.