Too sudden, LV can't be sold?

China Fund News Amman

LV can't sell either?

Late on the evening of the 10th, Beijing time, LVMH, the world's largest luxury conglomerate, released its third quarter performance report. According to the financial report, in the third quarter of this year, the group's operating income was 19.96 billion euros, an increase of 9% year-on-year, which was lower than the previous analyst expectation of 21.14 billion euros.

It is worth noting that this is the first time this year that LVMH's revenue has fallen short of expectations. Compared with the 17% revenue growth in the first and second quarters, the growth rate in the third quarter was almost halved.

Growth has generally slowed

From the perspective of various business lines, whether it is the most well-known luggage or the watch & jewelry business that has been heavily invested in the past two years, the growth rate has slowed down compared with the same period last year.

Among them, LVMH's wine and spirits business revenue in the first three quarters fell 7% year-on-year, the only category to decline. This compares to a positive 14% growth in the same period last year.

Although the luggage business increased by 16% year-on-year, it still had a considerable decline compared with 24% in the same period last year; Growth in the watch & jewelry business even slowed back to single digits – 9 percent, compared with 16 percent a year earlier.

It is worth noting that LVMH's boutique retail business achieved 26% growth in the first three quarters, and it is also the only business whose performance growth rate has not declined.

It is understood that LVMH's boutique retail business mainly involves two major areas: customized retail (travel retail) for international travel customers such as DFS and Miami Cruiseline; Boutique retail represented by Sephora, the world's most innovative beauty retail brand, and Le Bon Marché Rive Gauche, a one-of-a-kind Parisian department store.

LVMH said in the earnings report that benefiting from the strong purchasing power in North America, Europe and the Middle East, Sephora performed well and continued to expand its market share; With the gradual recovery of international travel, especially the return of Hong Kong and Macau, DFS's revenue rebounded strongly.

Sales in Asia plunged in the third quarter

From the perspective of sales regions, except for the US market, which already had negative growth in luxury sales in the second quarter, Japan barely maintained its growth rate, but Asia (excluding Japan) and Europe both saw a significant growth rate plunge in the third quarter.

After a sharp rebound in the first half of the year, the Asian region, which had high hopes, ebbed its enthusiasm in the third quarter, growing only 11% year-on-year. LV's home base, Europe, also saw revenue decline, with growth falling to single digits in the third quarter.

After the earnings report, LVMH U.S. stocks dipped intraday, rising 3.2% intraday when they updated their daily high before the earnings report, and quickly gave up their gains after the earnings report, closing down about 1.7%. The cumulative decline in the last six months has widened to nearly 19%.

As shares have fallen, LVMH has ceded the throne of Europe's most valuable public company to diet drug leader Novo Nordisk.

On September 1 this year, just over four months after LVMH became the first European company with a market value of more than $500 billion, Danish pharmaceutical company Novo Nordisk, which is booming with Internet celebrity diet drugs, closed with a market value of LVMH and promoted to the highest listed company in Europe.

Luxury is cooling

As the first luxury giant to publish a three-quarter report, LVMH's earnings report sounded the alarm about slowing sales throughout the luxury industry. Hermès and Kering will also disclose results later this month.

In fact, the fatigue of the luxury industry can be seen in the second-quarter earnings report. LVMH posted a rare decline in U.S. revenue in the second quarter, after the group's U.S. sales growth slowed to 3 percent in the first half of the year, far below the 24 percent in the year-ago quarter.

Kering also struggled in the U.S., with North America falling 16% in the first half of the year, core brand Gucci down 22% in the region, and growth in other markets, albeit at low double-digit and single-digit levels, with Asia-Pacific up 11% and Europe up 5%.

Although Hermès continued its strong double-digit performance in the first half of the year, it cannot be taken lightly. Morgan Stanley recently warned that demand for expensive handbags and jewelry may slow down as speculative property consumers decrease.

Johann Rupert, the majority shareholder and chairman of Cartier's parent company Richemont, recently issued a direct warning that inflation is weakening market demand. Valentino Chairman Rachid Mohamed Rachid also said in the latest interview that he is pessimistic about the outlook for the luxury industry, which expects growth to be less than 10% in 2023.

Rachid Mohamed Rachid pointed out that although a large number of tourists around the world have returned after the pandemic, travel spending has changed a lot, and people are more willing to spend money on experiences such as hotels rather than shopping.

In September, in an effort to stimulate consumption, Chanel raised the price of its products in markets such as China, Thailand, Japan and Australia by between 6% and 8%. However, what is different from the past is that before this price increase, consumers have rarely seen the grandeur of long queues to rush to buy.