(News Bulletin 247) – Shares in the luxury goods industry’s number one fell sharply on the Paris Stock Exchange on Wednesday after the company reported growth limited to 1% in the second quarter in comparable data.

After two good publications, LVMH has this time produced a very mixed report. The world’s number one luxury goods company has published results and growth that were generally lower than expected in the first half of the year.

On the Paris Stock Exchange, LVMH shares fell sharply on Wednesday, losing 5.2% at the start of the session to 656 euros.

“LVMH’s first-half results show a second quarter of 2024 slightly below expectations, but growth maintained despite macroeconomic challenges,” summarizes Jie Zhang, analyst at the independent research firm Alphavalue.

Deutsche Bank is a little more critical, citing results below expectations that had already set the bar low.

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Japan’s strong growth

Over the period from April to the end of June, LVMH generated revenues of 20.98 billion euros, reflecting comparable growth of only 1%, a slowdown compared to the first quarter (+3%).

According to a consensus quoted by Royal Bank of Canada, analysts were expecting a 3% increase in comparable data and revenues of 21.48 billion euros.

Fashion and leather goods, its largest division, also posted like-for-like growth of 1% in the quarter, versus a consensus of 2%. LVMH also continued to experience a decline in sales in wines and spirits, although less pronounced than in the previous quarter (-5% versus -12% like-for-like), while the watches and jewelry division suffered (-4%) and selective distribution, which includes Sephora and sales in airports and train stations, slowed, growing 5% versus 11% in the first quarter.

LVMH has had to deal with weak sales in Asia-Pacific, a region that includes China. Revenues fell 14% on a comparable basis in the second quarter, accelerating their decline after a 6% decline in the first quarter.

“Low traffic and weaker demand persisted in China, although Chinese consumers continue to drive global growth, particularly in the fashion and leather goods division,” Jie Zhang said.

In fact, Chinese consumers have spent a lot abroad, which has driven demand from other countries, especially Japan. LVMH’s growth reached 57% on a comparable basis in the second quarter in Japan.

LVMH Chief Financial Officer Jean-Jacques Guiony reminded analysts that Fukuoka, a major Japanese city, is just a two-hour boat ride from the Chinese coast. But the executive said the shift in Chinese demand to spending in Japan was putting downward pressure on the company’s margins.

Ultimately, the Chinese “cluster”, that is to say the spending of Chinese consumers in mainland China but also in Macao, Hong Kong and abroad, “held up well” in the fashion and leather goods division, explained the manager. Even if its growth slowed down a little in the second quarter compared to the first when it had reached a figure very close to 10%.

A disappointing margin

LVMH’s growth held up well in the United States (+2% like-for-like) and in Europe (+4%).

Over the first half of the year, LVMH saw its revenues increase by 2% on a comparable basis to 41.7 billion euros.

The current operating profit of the owner of Celine, Dior and Louis Vuitton fell by 8% to 11.574 million euros. The operating margin stood at 25.6% compared to 27.4% in the first half of 2023.

Deutsche Bank noted that recurring operating profit was 4% below consensus, while margin also disappointed, with expectations coming in at 26.2%.

For the future, Jean-Jacques Guiony indicated that the group did not have much visibility, although he noted that the basis of comparison for the second half would be a little less demanding.

“Investors are hoping that the second quarter will reflect the trough in LVMH’s sales, given the easier basis for comparisons, but we think they will start to question whether this more lenient basis will be enough,” Deutsche Bank said.

The establishment notes that the group is taking measures on its costs “but investors need to see evidence of the recovery of sales, particularly in China, before becoming more optimistic”, it warns.

Royal Bank of Canada, for its part, points to the company’s strong cash generation (3.1 billion euros in the first half), which constitutes one of the positive elements of the publication. “We believe that LVMH is doing relatively well in a difficult macroeconomic and consumer context, which reinforces our positive opinion on the stock,” concludes the Canadian bank.