Lower sales of spirits and handbags hit LVMH growth

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Sales growth at luxury conglomerate LVMH slowed in the third quarter, as demand for handbags moderated and that for spirits fell after several years of stellar growth.

The French group, controlled by Bernard Arnault, said sales grew 9 per cent in the third quarter to €19.9bn, down from a 17 per cent rise in the preceding quarter, reflecting softer luxury sales worldwide, notably in the US and Europe.

Sales in Asia excluding Japan grew at 11 per cent in the quarter, down from 34 per cent in the previous three months, while the US continued the trend of low single-digit growth from earlier in the year as aspirational consumers pulled back on spending. In Europe, most countries were now growing in the mid single-digit range, according to LVMH chief financial officer Jean-Jacques Guiony.

Guiony said there had been “no marked change in the business we do with the Chinese clientele” in the most recent quarter, but he noted that people were travelling abroad more and could be shopping there.

However in Europe he said “we’ve seen slight drops in the third quarter compared to mid single-digit growth in the first half of the year . . . time will tell, depending on the depths and lengths of the cycle, whether it was a [change] in consumption or merely a blip after three extraordinary years”.

Sales at LVMH’s fashion and leather goods division — its biggest — grew 9 per cent in the third quarter, a slower pace than the 21 per cent growth in the second quarter. Selective distribution, which includes travel retail and Sephora, had the fastest growth at 26 per cent this quarter.

However, wines and spirit sales fell 10 per cent, which LVMH said was linked to a post-Covid normalisation of demand and the tougher economic environment in the US, particularly for cognac sales. 

“In an uncertain economic and geopolitical environment, the group is confident in its continued growth . . . LVMH is counting on the dynamism of its brands and the talent of its teams to further strengthen its lead in the global luxury market in 2023,” the company said.

The headline figure comes in below Visible Alpha’s consensus estimate of 11.5 per cent sales growth in the quarter for LVMH, which owns 75 brands ranging from fashion houses Louis Vuitton and Dior to beauty retailer Sephora. 

LVMH is the luxury industry’s biggest group by far and regarded as a bellwether given its size and influence. Luxury companies had already reported a slowing pace of growth in the US, the industry’s largest market, last quarter. Tighter economic conditions in China, which has been the motor for the luxury industry’s record sales from early 2020 onwards, have also set the stage for the sector to experience more moderate growth.

“We expect a broad-based growth normalisation in the third quarter, with demand from European locals normalising, and less support from tourism flows,” wrote analysts at HSBC. “The performance in the US is unlikely to have improved despite facing an easier basis of comparison.

“China is [also] facing a tougher basis of comparison, and the macro environment is unsupportive, likely leading to a sequential slowdown,” they warned.

“Contrary to past quarters such as Q2, where the sluggishness in the US was more than offset by a rebound in China, this time we do not see any compensating factor; but rather, a broad-based normalisation of growth across all geographies,” HSBC wrote. 

Shares in LVMH have risen around 20 per cent in the past 12 months despite falling by around 12 per cent in the past half year, as investors worried the luxury boom had faded.