Luxury goods conglomerate LVMH experiences a decline in sales, as the darkness in the high-end market intensifies.
LVMH, the French luxury goods conglomerate, reported a 4% decline in sales to £17 billion for the three months ending June 2021. This is the worst quarterly drop since the start of 2020, when Covid-19 began.
The decline was primarily due to weakened demand in key markets like the US and China, where economic uncertainty and cautious consumer behavior led shoppers to reduce spending on luxury items such as Louis Vuitton bags and Dior jackets. This affected LVMH’s largest segment, Fashion and Leather Goods, which saw a 9% drop in revenue organically during the quarter.
Economic uncertainty played a significant role in the slump, as consumers became more cautious with luxury purchases. Slowing demand, especially from wealthy consumers in the US and China, major sources of LVMH’s revenue, also contributed to the decline. Trade tensions and tariff issues added pressure, though ongoing negotiations and plans to expand manufacturing in the US aim to mitigate this risk.
Despite the dip, LVMH retained strong pricing power and maintained a healthy operating margin of around 22.6%, indicating resilience despite the downturn. The company also expressed cautious optimism for recovery as trade talks progress and economic conditions potentially improve.
LVMH's supremo, Bernard Arnault, had anticipated that strong demand from wealthy Americans would offset a slowdown in China. However, demand has been affected by trade tensions between the US and China. To mitigate the impact of tariffs, LVMH is planning to open a second factory in Texas by 2027. Additionally, the flagship fashion brands have the potential to increase prices to offset tariffs.
CEO Cecile Cabanis stated that a 15% tariff rate would be a favorable outcome from the current trade negotiations between the EU and the US. It is important to note that this article contains affiliate links for several investing platforms, including AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212. However, the article does not indicate which of these platforms is recommended or preferred.
As we approach the second half of the year, LVMH is approaching with caution, but remains confident in the company’s long-term potential. For more information about these investing platforms, each has a "Learn More" option available.
[1] Financial Times
[2] Bloomberg
[3] Reuters
Business analysts may advise investors to closely monitor the financial sector and luxury goods market, as economic uncertainty persists and trade tensions impact companies like LVMH. In an effort to mitigate tariff risks, LVMH is considering investing in expanding its manufacturing business, potentially opening a second factory in the US by 2027.
