LVMH reports lower revenue as Chinese luxury spending declines

LVMH Moët Hennessy Louis Vuitton, the world’s leading luxury goods conglomerate, has reported a significant miss in its revenue expectations for the first half of 2024. The primary cause of this shortfall is the continued decline in luxury spending in China, which has historically been one of the company's most robust markets.

According to the company's latest financial report, LVMH's net profit fell by 14% in the first half of 2024, totaling €7.27 billion, missing analysts' forecasts. The revenue for the core fashion and leather goods division, which includes iconic brands like Louis Vuitton and Dior, declined by 2% to €20.77 billion. This division's performance is critical as it constitutes a substantial portion of LVMH's overall revenue.

Bernard Arnault, Chairman and CEO of LVMH, commented on the results, stating, "The results for the first half of the year reflect LVMH’s remarkable resilience, backed by the strength of its maisons and the responsiveness of its teams in a climate of economic and geopolitical uncertainty". Despite the challenges, Arnault expressed confidence in the group's ability to navigate the second half of the year, emphasizing the agility and talent of its teams.

The slowdown in China has been particularly impactful. Traffic in Chinese luxury shopping malls has decreased, and luxury sales have seen double-digit declines. This trend is not isolated to LVMH; other luxury brands like Burberry and Swatch Group have also reported significant drops in revenue due to the reduced spending by Chinese consumers.

In the second quarter, LVMH's revenues rose by 1.4% to €20.98 billion, which was below the Visible Alpha consensus estimate of €21.48 billion. When adjusted for currency fluctuations, the revenue increase was a mere 1% year-on-year, indicating a slowdown from the first quarter's 3% organic revenue growth. The fashion and leather goods division, in particular, posted sales of €10.28 billion, up just 1% on a like-for-like basis, falling short of the forecasted 2% increase.

The wines and spirits segment, along with watches and jewelry, experienced the most significant declines in operating profit, down 26% and 19%, respectively. Organic sales of wines and spirits fell by 5% in the second quarter, while watches and jewelry saw a 4% decrease. Conversely, perfumes and cosmetics grew by 4%, and selective retailing rose by 5%.

LVMH's share price has also been affected, dropping more than 20% from its peak earlier in the year. This decline reflects the broader impact of inflation on global demand for high-end goods. Despite these challenges, LVMH continues to focus on enhancing the desirability of its brands and maintaining its strategy of high-quality products and excellent retail experiences.

Arnault remains optimistic about the future, stating, "While remaining vigilant in the current context, the group approaches the second half of the year with confidence, and will count on the agility and talent of its teams to further strengthen its global leadership position in luxury goods in 2024".

By analyzing LVMH's recent financial performance, it is clear that the luxury market is facing significant headwinds, particularly from the Chinese market. However, the company's resilience and strategic focus on quality and brand strength provide a solid foundation for navigating these challenges.