LV and Dior are not selling well? LVMH's second-quarter sales slowed more than expected, dropping 14% in Asian markets such as China.丨 Financial Report Insights

The recent financial report shows that this year, overseas high-end luxury brands have been losing ground in China, with the world's largest luxury goods group LVMH seeing consecutive sales declines for two quarters, accelerated by the decline in sales in China and other Asian regions.

On Tuesday, July 23, local time, LVMH, headquartered in France, announced its financial data for the first half of this year, showing that the second quarter of 2024 had an operating income of 20.98 billion euros, a year-on-year decrease of about 1%. Analysts had expected a year-on-year growth of 0.9% to 21.41 billion euros. Sales achieved organic growth of 1% through existing internal resources rather than external acquisitions in the quarter, far below the analysts' expected growth rate of 2.89%. Since the beginning of 2024, LVMH's organic growth in the two quarters has been below expectations, with a further slowdown in the second quarter, at less than half the growth rate of the first quarter, which was 3%.

LVMH's largest source of revenue—its fashion and leather goods business including brands such as Louis Vuitton (LV), Dior, Celine, and Fendi—also underperformed, with organic sales growth of 1% in the second quarter, compared to analysts' expected growth of 1.95%. A year ago, organic growth in this business in the second quarter was as high as 21%.

By region, in the second quarter, LVMH saw organic sales growth of 2%, 57%, and 4% in the three major markets of the United States, Japan, and Europe, respectively. However, sales in non-Japan Asia, including China, declined by 14%, falling short of expectations. LVMH believes that the decline in sales in the Chinese market partially offset the strong consumption of Chinese tourists overseas, especially in Japan, affecting the company's performance.

According to the data released by LVMH,

• Revenue for the first half of this year was approximately 41.68 billion euros, a 1% decrease year-on-year, slightly below analysts' expected 42.22 billion euros, which was expected to increase slightly year-on-year;
• Organic sales in non-Japan Asia, including China, declined by 6% in the first half of the year. LVMH's net profit for the first half of the year was 7.27 billion euros, a 14% decrease year-on-year, slightly below analysts' expected 12% decrease to 7.45 billion euros;
• Operating income for the first half of the year was 10.65 billion euros, also below analysts' expected 11.08 billion euros;
• EBITDA profit for the first half of the year was 943 million euros, higher than analysts' expected 921.5 million euros.

Revenue for LVMH's fashion and leather goods business in the first half of the year was 20.77 billion euros, a 2% decrease year-on-year, below analysts' expected 21.02 billion euros. When commenting on the performance in the first half of the year, LVMH mentioned that the negative impact of exchange rate fluctuations was particularly significant for the fashion and leather goods business. Regarding various markets, LVMH stated that revenue increased in Europe and the United States in the first half of the year, with significant growth in revenue in Japan, supported by Chinese tourists shopping in Japan.

Bernard Arnault, Chairman and CEO of LVMH, mentioned in the statement releasing the financial report the negative impact of the economic and geopolitical environment on the company. He stated that the performance in the first half of this year reflects the extraordinary resilience of LVMH, thanks to the strength of its brands and the company's team's responsiveness in the face of economic and geopolitical uncertainties. LVMH remains vigilant in the current environment while confidently facing the second half of the year After the financial report was released, LVMH's US stocks saw a rapid expansion in intraday decline. Towards the end of the morning session, the intraday decline expanded from over 1.6% to over 4% in just about five minutes, hitting a daily low with a 5.1% decline.

The slowdown in luxury goods sales is not surprising news. Wall Street News previously mentioned that after two years of rapid growth following the outbreak of the COVID-19 pandemic, the consumption of luxury goods has continued to cool down. Although LVMH achieved a record high revenue last year, the full-year revenue growth slowed to 8.8%, less than half of the 23% growth rate in 2022. As a barometer of the luxury goods industry, LVMH's latest financial report undoubtedly sheds more light on the situation of the Chinese luxury goods market. Prior to LVMH's performance announcement, the performance of several luxury brands in Europe last week had already issued warnings about the demand in the Chinese market.

Last week, Swiss fashion watch manufacturer Swatch announced a sharp 70% decline in net profit for the first half of the year, attributing it to the decrease in luxury goods demand in the Chinese market. British Burberry expects to incur operating losses in the first half of this year, with full-year operating profit below guidance. German Hugo Boss lowered its sales and profit guidance for this year due to weak consumer demand in China and other regions worldwide. Swiss Richemont saw a slight 1% increase in sales in the first quarter, but sales in the Greater China region dropped by 27%