LVMH Exceeds Expectations Like Chinese Flags

This story has been updated.

PARIS – The Chinese dam is broken for LVMH Moët Hennessy Louis Vuitton.

The world’s biggest luxury group missed market expectations with a 4.4 percent drop in revenue in the third quarter, blaming slow growth in Japan and a “clear deterioration” in sales of clothing and accessories. to Chinese citizens.

Total sales in its core and leather goods division fell 5 percent year-on-year, well below Visible Alpha’s consensus forecast for an increase of 1 percent.

The sector leader’s troubles have shown the depth of the trust problem among Chinese consumers.

Their spending on fashion and leather goods was down by mid-points in the third quarter, after rising to mid-points in the first half of the year, the chief financial officer said. Jean-Jacques Guiony told critics and journalists. webcast on Tuesday.

Golden Week Not Golden

The watch and jewelry business remains under pressure, but it has not worsened. The National Golden Week holiday, which ran from October 1 to 7, didn’t move the needle in any way, Guiony noted.

The French conglomerate, with more than 75 brands including Louis Vuitton, Dior, Tiffany & Co. and Sephora, which is in the process of cutting costs, but plans to continue investing in stores, communications and events in China next year. the belief that demand will eventually return. Guiony said: “We are not giving up.

He added: “We remain very optimistic that the luxury industry will continue to improve and will continue to ride the wave of emerging luxury. “Let’s see. any reason why, after the collapse of the cycle we are in today, we will not be able to recover.”

The fortunes of luxury goods have been closely linked to China’s announcements of economic stimulus measures aimed at curbing excessive growth linked to factors including a slumping property market and high youth unemployment.

The world’s second-largest economy is at risk of missing its 5 percent growth target by 2024, analysts say.

Guiony said recent announcements show that Chinese authorities understand the need to encourage domestic spending, although he would not speculate on the timing of a potential change.

“Whether these measures will be enough or not, [or] it will be completed in the future with other measures, I have no information, but it clearly shows that they take this issue very seriously,” he said.

A delay from the second quarter

Reporting results after the market closed, LVMH said net income was 19.07 billion euros in the three months to September 30, below Visible’s forecast. Alpha of 20.01 billion euros.

Excluding the impact of currency fluctuations, sales fell 3 percent year-on-year, marking a decline from the second quarter, while organic sales increased 1 percent.

Like-for-like sales in Japan rose 20 percent in the third quarter after jumping 57 percent over the past three months as the yen recovered from its recent weakness.

In other Asian countries, the trend worsened with a decrease of 16 percent in the third quarter.

Sales were flat in the US and 2 percent in Europe, representing a slight quarter-on-quarter decline in both cases.

LVMH does not break down results by brand and Guiony offered little insight into the underperformance of fashion and leather goods, other than to say that Vuitton was above average for the division and Dior slightly below. .

Creation of Creation

The sector faces a creative period, with the departure of Hedi Slimane from Celine, to be succeeded by Michael Rider; Kim Jones is leaving Fendi, with no successor yet to be revealed, and Sarah Burton is taking over at Givenchy.

Guiony said that LVMH hopes that the production of products will come out of the market downturn, and the responsibility will be on the new artistic directors to arouse interest in their offerings, although these will not appear in large numbers in the areas a few.

Some analysts have said that its cash cow models also need to be updated.

“The feeling is that both LV and Dior are in transition and need to take a breather before regrouping and starting again. Both brands have seen the same directors of womenswear for a long time, which looks inappropriate,” Bernstein analyst Luca Solca and his team said in an August report.

Unsurprisingly, Tuesday’s first press release from LVMH did not include a quote from chairman and chief executive Bernard Arnault, as the group reiterated its guidance for the year.

But at an event last week to celebrate 10 years of the luxury group’s vocational training program for artisans, the luxury magnate emphasized the importance of quality products over marketing.

“Our future customers should feel attracted to our products because of their perception of the excellence of our employees, not because we are trying to bring them together with an old marketing ploy based on the study of that what they want,” said Arnault.

LVMH’s share price has fallen 27 percent from its year-to-date peak of 872.80 euros on March 14 as inflation has dampened spending.

But Guiony made it clear that LVMH would not change strategy or lower prices in order to win back eager buyers.

“I think it would be a mistake. We must stay true to who we are. Luxury manufacturing has been a significant force over the years,” he said. “Current conditions are driven more by demand than by supply.”

The price of watches and jewelery was down 4 per cent in the third quarter, while wine and spirits were down 7 per cent. On the bright side, perfumes and cosmetics were up by 3 percent, and specialty sales rose 2 percent.

Revenue from retailer DFS remains below 2019 levels, and LVMH said last week it was bringing back Ed Brennan as interim CEO to help return the business to growth.

Other Administrative Changes?

More senior management changes are believed to be in the works, following a series of major changes in LVMH’s C-suite and the appointment of Arnault’s sons Alexandre and Frédéric to its board of directors.

This year alone, management changes have included the appointment of a new deputy CFO and head of the LVMH Fashion Group, as well as the resignation of Antonio Belloni, the long-time head of the LVMH group.

Towards the end of September, LVMH revealed internally the departure of Christopher de Lapuente, CEO of the selected sales division, who is retiring at the end of October.

Even as it tries to clamp down on spending, the luxury group has to deal with a large number of outstanding debts in the coming months.

If confirmed, French Prime Minister Michel Barnier’s plan to raise corporate taxes will cost LVMH between 700 million and 800 million euros, Guiony said.

Meanwhile, a disappointing Champagne harvest is set to wipe 40 to 50 million euros from the division’s profits, he added.

Cécile Cabanis, who is taking part in her first call as deputy CFO, says that the wine and spirits division will also be affected by China’s imposition of temporary measures to prevent the dumping of brandy from the European Union, a move that affect cognac producers disproportionately.

Cabanis said China accounts for just under 20 percent of Hennessy’s revenue, but the tariffs should have little near-term impact as Chinese production is higher due to weak recent demand.

LVMH was the first major player to report third-quarter sales. The French group Kering is due to present its figures in Oct. 23, followed by Hermès International on Oct. 24.

“At the moment, material revenue short of luxury bellwether LVMH is a negative for the industry ahead. [third-quarter] reporting period and during the key trading period of Christmas and Chinese New Year,” Thomas Chauvet, an analyst at Citi, said in a research note after the results.