LVMH Fashion and Leather Sales Fall 5% on China Weakness, Missing Forecasts

LVMH reported third-quarter revenue of €18.5 billion on Monday, October 12, with organic growth of 1% that fell short of analysts' expectations for growth of 1.3% in a Visible Alpha consensus. The driver was fashion and leather goods, which generates nearly half of group revenue and posted a 5% fall in organic sales against an expected 1.8% decline. LVMH's US-listed shares fell more than 3% after the update, and Paris shares were down more than 1.6% in early trading.

China was the main pressure point. Sales in Asia, dominated by China, fell 5% from a year earlier, and CFO Cecile Cabanis said Asia was penalised by a sharp macro-led deterioration in Chinese consumer sentiment. On the earnings call she put Chinese demand down in the mid-teens for the quarter. Reuters noted that Chinese consumers account for roughly a fifth of global luxury purchases, and that Europe's leading luxury groups have lost around €330 billion in market value since the start of the year.

Management also pointed to a one-off logistics and transportation disruption at Louis Vuitton that cost a bit more than a point of growth for the quarter. Reuters separately reported that the label has faced a consumer backlash in China over a copyright dispute with tea chain Molly Tea. Outside Asia the picture was steadier: U.S. sales rose 5% and Europe rose 4%, while Selective Retailing, which includes Sephora, grew 8% and both wines and spirits and watches and jewellery grew 6%. Over nine months, group organic growth was 2% and fashion and leather goods fell 2%.

Management expects the Chinese backdrop to remain challenging in the near term. Investors may watch whether the Louis Vuitton disruption fades, whether U.S. and European momentum holds, and whether Chinese consumer sentiment stabilizes, since the fashion division is large enough that strength in smaller units has not been enough to lift group growth.