Has the demand for luxury goods cooled down? LVMH's sales in the first quarter of this year were lower than expected, and the growth rate in Q3 was cut in half compared to the previous quarter.
LVMH is the first luxury goods giant to release its quarterly report, and investors may see its performance as a barometer of consumer spending in the coming months. Analysts say that consumers, who were excited after the pandemic, are now more cautious. After the earnings report, LVMH's stock initially rose more than 3% but later fell more than 1% in trading.
The demand for luxury goods, whether it's high-end wines, fashion, or designer handbags, has cooled down globally, reflecting the impact of inflation and high interest rates. The earnings report of luxury goods giant LVMH serves as the latest evidence of this trend.
On Tuesday, October 10th, local time, LVMH, headquartered in France, announced that its revenue for the third quarter of this year was 19.96 billion euros, lower than analysts' expectations of 21.14 billion euros. The organic revenue growth of existing businesses increased by 9% compared to the same period last year, but the growth rate for the first three quarters of this year slowed down to 14%.
It is worth noting that this is the first time this year that LVMH's revenue has fallen short of expectations, and the third quarter has been the slowest in terms of revenue growth. The revenue in the first and second quarters both grew by 17%, while the growth rate in the third quarter was almost half of the previous two quarters.
In terms of business segments, LVMH's largest source of revenue, including brands such as Louis Vuitton (LV), Dior, Celine, and Fendi, saw organic revenue growth of 9% in the fashion and leather goods segment in the third quarter, which was lower than analysts' expectations of 11.2% and far below the organic revenue growth rate of 20% in the first half of this year.
The worst-performing segment was the wine and spirits business, which saw a 14% decline in organic sales compared to the same period last year, far exceeding analysts' expectations of 2.79% and about five times the decline in organic revenue of 3% in the first half of this year.
Among all business segments, only the boutique retail business, including cosmetics brand Sephora, saw organic sales growth higher than expected, with a year-on-year growth of 26% in the quarter, matching the growth rate in the first half of the year. The organic sales of perfumes and cosmetics, as well as watches and jewelry, increased by 9% and 3% respectively, both of which grew by 13% in the first half of the year.
In addition, in major markets, LVMH's organic sales growth in the United States was only 2% in the third quarter, and sales in other Asian regions, excluding Japan, also fell short of expectations, indicating weak sales growth in China and other regions.
On the day the earnings report was released, LVMH's European stocks listed in Paris rose by 3.2%. However, LVMH's US stocks plunged during the trading session, with a 3.2% increase before the earnings report was released, but quickly reversed the gains and fell by about 1.7%. The cumulative decline in the past six months has expanded to nearly 19%, while the cumulative increase for this year is less than 3%.
As the first luxury goods giant to release its third-quarter report, LVMH's earnings report has sounded the alarm for the entire industry's sales slowdown. Investors may view its performance as an indicator of consumer behavior in the coming months. Luca Solca, an analyst at Bernstein, pointed out in a report that there seems to be signs of sustained moderate growth in the industry, as consumers have gone from excitedly spending after the COVID-19 pandemic to being more cautious now. After the release of the third-quarter report, Jean-Jacques Guiony, the CFO of LVMH, stated that after three years of rapid growth, the company's growth is now moving towards a more sustainable level in line with historical averages.
Regarding the long-term growth prospects of Dior, the company's second-largest fashion brand, Guiony mentioned that the brand has doubled its growth in less than seven years. However, at some point in the future, the growth rate will have to return to normal. It should not be expected to continue growing at a rate of 30% every year.
In July of this year, after the release of the second-quarter earnings report, Wall Street News pointed out that the days of luxury brands "making money with their eyes closed" have come to an end. LVMH, Prada, and the parent company of Cartier, LVMH, all reported a slowdown in sales growth in the United States. While the rebound in the Chinese market is still ongoing, it is slower than some people expected.
The capital market's enthusiasm for luxury stocks is also cooling down.
On September 1st of this year, just over four months after LVMH became the first European company with a market value exceeding $500 billion, Danish pharmaceutical company Novo Nordisk, which gained popularity with its weight loss drugs, surpassed LVMH in market capitalization, becoming the highest-valued listed company in Europe.
Although LVMH's growth is slowing down, UBS analysts believe that in the long run, LVMH is still an attractive stock. According to UBS's report, its top-notch brand portfolio, strong industry fundamentals, and pricing power in an inflationary environment still make LVMH one of the most worthwhile stocks to own.