LVMH delivered a sobering set of third-quarter results on Monday, as weakness in China dragged down its core fashion and leather goods division and extinguished hopes that the luxury industry was on the cusp of a recovery.
The French conglomerate reported a 5% organic decline in fashion and leather goods sales to €8.245 billion, far worse than the 1.8% drop analysts had expected. Group-wide organic revenue rose just 1%, also missing forecasts. The slump marks a sharp reversal from the second quarter, when the division briefly returned to growth, and suggests a genuine turnaround remains elusive.
China was the biggest drag. Sales in Asia excluding Japan fell 5%, the only region to contract, while the United States grew 5%. LVMH chief financial officer Cécile Cabanis told analysts on a call that Chinese consumer sentiment suffered “an abrupt macroeconomic deterioration” in the third quarter, dealing a material blow to discretionary spending.
The picture was complicated further by a public-relations storm surrounding Louis Vuitton in China. The brand recently won a trademark infringement lawsuit against Chinese tea chain Molly Tea, triggering calls for a boycott on social media from consumers who felt the world’s largest luxury group had been heavy-handed toward a small business. Cabanis acknowledged the backlash had “at least a negative impact at the beginning of the quarter,” though she declined to quantify the damage.
The results sound an alarm for the wider sector. Major European luxury groups have shed roughly €330 billion in market value this year, with LVMH shares down more than 40% in Paris potentially their worst annual performance since the 2008 financial crisis. RBC analyst Piral Dadhania wrote that the figures “confirm that the recovery that had shown early signs of life earlier this year is now stalling.”
LVMH’s troubles reflect deeper structural problems. China’s property slump continues to weigh on consumer confidence, while tighter tax scrutiny of high-net-worth individuals has further dampened luxury spending. Meanwhile, middle-class American shoppers are pulling back under inflationary pressure, and Middle East conflict has eroded tourist purchasing power.
Rivals face similarly grim prospects. Kering and Hermès report next week, with markets expecting growth to slow from the second quarter. Bernstein said in a note that luxury houses must now demonstrate the ability to adjust pricing so core products become affordable to a broader consumer base, declaring that “the supercycle is over.”
Cabanis said the group was pinning its hopes on its own brands. “We hope these external factors will fade, but in the meantime, self-help is the number-one priority to improve performance.” Yet with Chinese confidence still searching for a bottom and global macro uncertainty persisting, the road back looks longer than the industry had hoped.
