(News Bulletin 247) – The world number one luxury retailer recorded lower-than-expected revenue growth in the third quarter, and all its divisions, with the exception of selective distribution, posted weaker performances than expected. This risks worrying the market about the luxury outlook for next year.

The market expected that the copy made by LVMH would shine with a less intense fire than the previous ones. But he hoped for a little better.

The world number one luxury company kicked off its third quarter publications on Tuesday evening, reporting on its activity from July to the end of September. The result is a serious slowdown, with the company led by Bernard Arnault recording revenues of 19.96 billion euros, which reflects growth of 9% over one year on a comparable basis. That is almost half as much as in the previous quarter (+17%).

According to a consensus cited by Royal Bank of Canada, analysts following the value expected more pronounced growth over the quarter, of 11%.

On the Paris Stock Exchange, LVMH shares found themselves under pressure and fell 6% to 690 euros in early trading this Wednesday, October 11, falling below 700 euros for the first time since January. It should also be noted that the stock rose 3.2% on Tuesday.

The stock falls to its lowest since December 30, 2022 and erases more than 20 billion euros in market capitalization.

LVMH’s publication also weighs down all other groups in the sector: Kering drops 2%, Hermès 1.9%.

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Europe slows down, cognac and spirits plunge

The company’s management attributed the slowdown in its growth to essentially two factors: the moderation of its growth in Asia (34% in the second quarter compared to 11% in the third) due to a higher basis of comparison in China, and the normalization of demand in Europe, whether at the level of local consumers or tourism (Europe posted organic growth of 7% in the third quarter compared to 19% in the second).

All of the company’s divisions, with the exception of selective distribution (Sephora, travel retail) disappointed. Notably the company’s flagship, fashion and leather goods, with an increase of 9% on a comparable basis, compared to 11% expected by the consensus. Royal Bank of Canada notes that this division had not experienced a failure for “several years”. Wines and spirits plunged 14% like-for-like in the third quarter, due to a 21% drop in sales of cognacs and spirits, notes the Canadian bank.

Jean-Jacques Guiony, the financial director of LVMH, told analysts that, as in the first half, “pressures” continued to penalize so-called “aspirational” customers, that is to say less fortunate than traditional customers and more focused on less expensive products that are more in tune with the times. “There is nothing new on this subject, either good or bad,” he explained.

Positive point however: LVMH returned to growth in the third quarter in the United States with an increase of 2% on a comparable basis compared to a decline of 1% in the second. Jean-Jacques Guiony, however, put this “marginal” shift into perspective, explaining that it did not really mark a change in trend among American customers.

Concerns for 2024

Beyond the third quarter, this publication of the luxury benchmark may well raise concerns about the strength of demand for next year, which in reality constitutes the main point of attention for the market.

It is already certain that the fourth quarter of 2023 should be “good” for luxury, due to an undemanding basis of comparison in China, since the end of 2022 was marked by containment measures in the country.

LVMH’s failure “increases pressure on the luxury sector as a whole in the short term, especially since the outlook for 2024 remains unclear and the negative revisions to profits are probably not over”, points out Royal Bank of Canada.

Deutsche Bank is on the same note. The German bank believes that the lower-than-expected performance of fashion and leather goods “should dampen expectations in the fourth quarter and relaunch the debate on the extent of a slowdown in 2024”. The establishment is counting on an increase of 6% on a comparable basis in the group’s revenues for next year. “The uncertainty for 2024 is intact,” considers Sarah Thirion of TP ICAP Midcap.

If the market punishes LVMH for the moment, the diversity of its portfolio of renowned brands could later constitute a defensive asset in this context of normalization of demand. “LVMH is the most diversified luxury house, which will allow it to outperform its reference market,” argues Sarah Thirion.

“While the third quarter sales released today do not help our buy recommendation on LVMH, we still see an acceleration in sequential growth in the fourth quarter thanks to easier bases of comparison in China and the United States. United and we note that expectations have recently been lowered for 2024 (we expect organic growth of 7%) and that the valuation has been brought back to more attractive levels”, develops Stifel for its part.

“While we struggle to see an immediate turnaround in momentum, we continue to believe that LVMH’s best-in-class brand portfolio, strong long-term fundamentals and pricing power make it the “one of the best values ​​in the sector in this context of uncertainty”, underlines UBS for its part.