Main performance fell short of expectations, with quarterly revenue dropping for the first time since the epidemic, luxury goods giant LVMH plunged 10% at one point｜Financial Report Insights

LVMH, the world's largest luxury goods group, released its financial report on Tuesday, showing that all major divisions in the third quarter fell short of analysts' expectations, with quarterly revenue declining for the first time since the pandemic, causing the company's ADR in the US to plummet by 10% at one point on Tuesday. The company stated that the poor performance in the third quarter was mainly due to the strengthening of the Japanese yen, leading to a slowdown in growth in the Japanese market.

Key Financial Data:

Third Quarter Revenue: €19.08 billion, a 3% year-on-year decrease, below analysts' expectations of €20.05 billion.

By Business Segment:

Fashion and Leather Goods: Including high-end brands such as Louis Vuitton and Dior, revenue was €9.15 billion, a 5% decrease year-on-year, below analysts' forecast of €9.67 billion.

Wines and Spirits: Organic sales declined by 7%, compared to analysts' expected decrease of 2.41%.

Perfumes and Cosmetics Division: Organic revenue increased by 5%.

By Region:

Asia (excluding Japan): Organic revenue declined by 16%, compared to analysts' expected decline of 13.8%.

Japan in the Third Quarter: Organic revenue increased by 20%, down from 57% in the previous quarter.

Organic Revenue in the US in the Third Quarter: Flat, with analysts expecting a 3% growth.

After the financial report was released, LVMH's ADR in the US plummeted by 10%, but the decline narrowed to around 6%. Other luxury goods stocks, including Ralph Lauren, Estee Lauder, and Kering SA, also saw significant declines.

Global luxury goods demand slowdown is affecting the entire industry, with LVMH being seen as an industry bellwether. The company stated that the decline in revenue this quarter was mainly due to the slowdown in growth in Japan, where growth plummeted from a significant 57% in the previous quarter to 20%, attributed to the strengthening Japanese yen. RBC Capital Markets analyst Piral Dadhania noted in a report that this result "indicates a more pronounced slowdown than expected."

Media reports highlighted that against the backdrop of sluggish global luxury goods demand, Japan stood out in the previous financial quarter for major luxury goods companies, driven by tourists taking advantage of the weak yen to purchase luxury goods at lower prices. Analysts at JP Morgan had previously indicated in a report before the earnings release that price increases for luxury brands in Japan and the strengthening yen could limit this trend.

Some analysts believe that the consumption boom in the luxury goods industry during the pandemic has come to an end, especially for LVMH's brands targeting the so-called "aspirational" consumers.

LVMH owns over 75 brands, spanning from fashion and leather goods to watches, jewelry, and travel in the luxury goods sector. The Fashion and Leather Goods division accounts for nearly half of LVMH's revenue and contributes to almost three-quarters of its recurring profit The financial report shows that sales in the Asian (excluding Japan) market for this department have worsened, with a decline from 14% in the previous quarter to 16%.

Meanwhile, Kering Group and Burberry have both experienced double-digit declines in sales in recent quarters, while Hermes has benefited from its more resilient ultra-wealthy customer base. LVMH's stock price has fallen by nearly 14% this year, while Kering Group has dropped by 41% and Hermes has risen by almost 10%.

Currently, LVMH is undergoing a transformation, with Bernard Arnault's five adult children taking on more important operational roles within the group. LVMH's CFO Guiony stated that the company will not maintain the status quo, focusing on product innovation and adjusting costs based on "what is seen".

Looking ahead, LVMH stated that despite economic uncertainties, the company remains confident.

"In an uncertain economic and geopolitical environment, the group remains confident and will continue to stay focused, enhancing the brand's appeal through product authenticity and quality, outstanding distribution capabilities, and a flexible organizational structure."