China gloom hits LVMH, dims hopes of luxury revival

Luxury bellwether LVMH on Monday reported weaker-than-expected third-quarter sales as a sharp deterioration in Chinese consumer mood hit demand for its flagship brands Louis Vuitton and Dior. The trading update ‌from the world's largest luxury group, and the first major sector player to report third-quarter results, is likely to heighten concerns that the $350 billion luxury industry, mired in a three-year slowdown, will struggle to regain momentum.

Europe's leading luxury groups have lost around €330 billion in market value since the start of the year, with LVMH alone shedding roughly 40%. LVMH's US-listed shares fell more than 3% after ‌the trading update was published. Organic sales, which strip out currency swings, rose 1% from a year earlier to €18.5 billion ($20.7 billion), missing analysts' expectations for growth of 1.3%, according to ‌a Visible Alpha consensus.

The fashion and leather goods division, which generates nearly half of group revenue, posted a 5% fall in organic sales, against an expected 1.8% decline. "We think results will likely still be a negative catalyst for the sector overall," Bank of America analysts said in a note.

RBC analyst Piral Dadhania said he expected "modest pressure" on the stocks of LVMH and its peers following the results. Adding to investor concerns, growth in LVMH's watches and jewellery division, home ⁠to brands ​including Bulgari and Tiffany, slowed to 6% from 9% ⁠in the first half of the year.

The so-called "hard luxury" category, which many consumers see as offering more value than handbags and fashion, has largely withstood the broader downturn. Some analysts, however, have recently warned that resilience may ⁠be fading. Sales in Asia, dominated by China, fell 5% from a year earlier, while sales in the US rose 5%.

"In the third quarter specifically, Asia was penalised by a sharp macro-led deterioration in Chinese ​consumer sentiment, with a tangible impact on discretionary expenses," Chief Financial Officer Cecile Cabanis told analysts. China's tax crackdown on wealthy individuals has become the latest headache for luxury brands, ⁠which are already grappling with the fallout from the Iran war and signs of slowing consumer spending in the US.

Asked about the tax crackdown on a call with analysts, Cabanis said Chinese consumers' "feel good" factor had taken a hit. Chinese consumers ⁠account ​for roughly a fifth of global luxury purchases and were long the driving force behind the sector's growth. Demand has weakened sharply since the pandemic.

LVMH's fashion and leather goods division is dominated by Louis Vuitton, by far the group's largest brand. After proving more resilient than many rivals during the luxury downturn, its momentum has recently stalled. The label has also ⁠faced a consumer backlash in China over a copyright dispute with tea chain Molly Tea, which used a logo resembling the floral motif featured on Louis Vuitton's signature monogram handbags.

Asked whether ⁠Vuitton could follow sister brand Dior in replacing ⁠its creative directors, Cabanis declined to comment but said the brand needed to step up its efforts and strike the right balance between innovation and heritage. Cabanis said she did not believe in "drastic measures" such as price cuts to revive the brand.

Birkin bag maker Hermes and Gucci-owner ‌Kering are due to publish third-quarter ‌sales next week. ($1 = 0.8960 euros)

(reporting by Tassilo Hummel and Alessandro Parodi, additional reporting by Samuel ​Indyk. Editing by Dominique Patton and Mark Potter)