Growth slows in Q3 as luxury market normalizes

Over the first nine months of the year, LVMH recorded organic growth of 14% to 62.2 billion euros. But in the third quarter alone, the increase was 9%, to 19.9 billion, below the consensus of Bloomberg analysts, who were expecting 11.9%. This figure is clearly down on the 17% growth published for the first and second quarters of 2023. This was a source of concern for the market, which harshly punished the number 1 in luxury goods, seeing its share price plunge by more than 6% the day after its quarterly results on the Paris Bourse.

 
This trend towards a sharp slowdown is also reflected in the group’s Fashion & Leather Goods division, with nine-month organic growth of 16% (+11% on a reported basis) to 30.9 billion euros, but an increase of 9% in the third quarter to 9.7 billion – versus +18% in the first and +21% in the second -, again below analysts’ forecasts. The particularly cautious attitude of CFO Jean-Jacques Guiony during the results presentation teleconference on Tuesday evening, declaring that it was difficult to make forecasts and underlining the fairly significant impact of exchange rates on sales, did not reassure the market.

The current macroeconomic and geopolitical uncertainty explains this caution. According to the executive, we also need more hindsight to understand whether this is a new consumer cycle or just a sudden market anomaly. “After three exceptional and extraordinary years, growth is probably converging towards figures that are more in line with the historical average. There’s no reason to believe that we’re going to collapse, any more than we’re going to return to the kind of 20% growth we’ve enjoyed for some time,” he believes, reiterating that it’s very difficult to analyze the trend over just three months. After the post-Covid sales increase, “obviously, consumers need to take a break too,” he says.

This readjustment is reflected in a slowdown in sales on Asian and European markets in particular. In Asia excluding Japan, LVMH sales rose by 11% in the third quarter, compared with 23% in the first half. These figures were penalized by an unfavorable basis of comparison with a particularly strong third quarter 2022. In addition, many more Chinese are spending abroad.
 
As Jean-Jacques Guiony points out, “the biggest change is the proportion of sales made within Greater China and outside. When you buy abroad, you tend to spend more than at home”. In fact, for fashion and leather goods, the proportion of spending by Chinese customers abroad has doubled in one year, averaging 30% versus 15% last year, while it is less than 20% for spending on watches and jewelry, said the manager, adding that sales of most fashion and leather goods brands to Chinese customers have risen by 40% over two years. Japan, meanwhile, continues to post strong growth (+30% in the third quarter, +31% over nine months).
 
In Europe, Group sales rose by just 7% in the third quarter, compared with 24% in the first and 19% in the second. The weight of domestic consumers fell, while that of tourists rose, returning to almost pre-pandemic levels, benefiting from favorable exchange rates. “European demand fell for a variety of reasons, from global confidence to geopolitical tensions. Difficult to explain and analyze in three months,” according to the CFO.

On the other hand, he noted no notable changes in the US market compared with the trend recorded since the beginning of the year. Group sales there rose by 3% over nine months, and by 2% in the last quarter. After surfing on the savings accumulated during the pandemic and on the stimulus measures adopted by the US government, consumers, also affected by rising prices, seem to be turning away from products that have gradually become out of their reach.
 
“This slowdown is absolutely normal after the fabulous and remarkable years we’ve had”, moderates Jean-Jacques Guiony, who to underline his point takes the example of Dior, the group’s flagship house, whose sales increase for the quarter was close to the division’s average growth, like those of Louis Vuitton, i.e. around 9%. “Don’t expect Dior to continue to grow by 30% a year. It’s not going to happen,” he says.

“Dior has tripled in size over the last seven years. It can’t go on like this for years. At some point, growth has to normalize. You can’t grow 30% a year forever. The business has to consolidate. We can’t open so many boutiques, because we’d risk distributing the brand too widely. We need to understand the exact size of the distribution system and how to express the brand in terms of product categories,” he explains, reassuring us that “we’re not worried about the quality of the business at Dior, which is generating solid growth.”

Moreover, the strategy at Dior, as at Louis Vuitton, remains unchanged, even though both brands have new leaders since the beginning of the year, with Pietro Beccari taking the helm at Louis Vuitton and Delphine Arnault at Christian Dior. “Strategy is all about desirability, desirability, desirability,” insists the CFO. 
 
LVMH’s quarterly results come against an uncertain and complicated backdrop of heightened geopolitical tensions, a difficult economic environment and a structural slowdown in China. As Globadata’s analysts note, “although the Group is confident of continued growth for the remainder of the year, it seems likely that a deceleration similar to that of the third quarter will occur in the final quarter.”