LVMH China’s recovery offsets weaker US demand

LVMH’s sales in the second quarter were underpinned by a strong rebound in Chinese spending, which helped offset weak demand from ambitious customers in the United States, the group said Tuesday.

First-half revenue rose 17 percent year-on-year to €42.2 billion, with sales in Asia, excluding Japan, increasing 34 percent year-on-year in the second quarter. Profits in the first half grew 13 percent to 11.6 billion euros, just short of analysts’ expectations. However, second-quarter sales contracted 1 percent in the key US market, as an uncertain economic backdrop dampened demand from novice shoppers.

“We have a situation where an ambitious client suffers a bit,” CFO Jean-Jacques Guyonne told investors. “We’re seeing a drop in prices for entry-level products, online sales, and second-tier towns—a clear sign that your aspiring customer isn’t shopping as much as they used to.”

Sales of fashion and leather goods grew 21% in the first half to €21.2 billion, in line with analyst expectations. But after LVMH has consistently outperformed expectations in consecutive quarters, the numbers suggest the strongest post-pandemic luxury luxury players are beginning to cool off.

“(The results) hint at the first step of normalization… with consumer demand returning to normal following the post-pandemic euphoria,” Bernstein analyst Luca Solka said in a note to clients.

“This shift is likely to result in some disruption, as we saw recently with Richemont,” he said. “But – in the absence of a severely downward recession – the sector should soon find an even limit.”

The strength of China’s consumer recovery has been a concern for investors lately, as mixed signals in the Chinese economy lead to an uneven recovery across the broader sector.

For LVMH, spending by Chinese nationals in the first half increased from 40 to 45 percent compared to the same period in 2021, said Guyone, who added that Chinese spending remains concentrated at home and among regional tourist destinations, with a “very small” pool. Just. Back to Europe now.

“We don’t have groups, we just have individual travelers who are a small part of the customers we are used to,” he said.

Guyone said Europe, where revenue rose 22 percent in the second half, was boosted by domestic spending and increased tourism from affluent American and European shoppers.

Elsewhere, Sephora performed “exceptionally well” in the first half, while DFS benefited from a resurgence in Chinese tourism, particularly in Hong Kong and Macau.

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