Sales at LVMH’s biggest division slumped as worsening economic conditions and a consumer backlash in China hit its key Louis Vuitton brand.
Revenue at the fashion and leather goods unit slid 5% in the third quarter on an organic basis, LVMH Moët Hennessy Louis Vuitton SE said Monday, a bigger decline than analysts had forecast. Total sales at the luxury group also missed estimates.
“These results confirm a stalling in already fragile recovery momentum from earlier in the year,” RBC analyst Piral Dadhania said in a note.
LVMH’s American depositary receipts fell as much as 3.6% in New York following the release. The group’s shares have tumbled by more than 40% this year in Paris, putting them on track for the worst annual performance since the global financial crisis in 2008.
Louis Vuitton sales suffered in China after the brand won a trademark dispute against Molly Tea, a local tea maker, Bloomberg reported last month. The victory drew a backlash from Chinese consumers who deemed it unfair of the world’s largest luxury group to take the much smaller company to court.
LVMH Chief Financial Officer Cecile Cabanis said that it’s difficult to quantify the precise effect of the Molly Tea case on Louis Vuitton sales, but the backlash from consumers “had a negative impact, at least at the beginning of the quarter.”
The region that includes China saw sales slump 5%, the only area with a negative performance in the period.
More broadly, hopes for a rebound in the wider luxury industry have been undermined this year not only by sluggish Chinese demand, but also by the prolonged conflict in the Middle East and weaker consumer confidence. While much of the industry is feeling the effects of the downturn, LVMH’s stock is the worst performer this year among major luxury groups, followed by rival Hermes International SCA.
When asked about second-half profitability, Cabanis told analysts that while LVMH is working on efficiencies, short-term cost-cutting won’t increase sales. “I’m not sure we can fully offset the short-term top-line pressure but we keep pushing,” she said.
Speaking on Christian Dior Couture, Cabanis said designer Jonathan Anderson’s women’s ready-to-wear creations are getting “great traction” with customers, while the new handbags are taking a bit longer to win over shoppers. Anderson took over as artistic director last year to revitalize the brand, which has been ceding market share to rival Chanel.