Shares in LVMH and Kering down as shoppers rein in luxury spending

Disappointing figures from the luxury goods conglomerates LVMH and Kering as shoppers reined in spending on handbags, designer clothing and champagne have hit the value of firms in the sector around the world amid fears of ongoing weak demand.

Shares in LVMH, which owns Louis Vuitton, Dior and Tiffany, slid nearly 5% as it revealed that sales in the key Asian markets, excluding Japan, were down 14% in the three months to June amid weak demand for Cognac in China and slowdowns in demand for fashion, watches, leather goods, perfumes and cosmetics.

Analysts said lower-priced goods, including some handbags, were performing worse than higher priced items such as garments.

Shares in Kering were down more than 4% as group revenues fell 11% in the first half of the year to €9bn, led by an 18% slump at Gucci. Group underlying operating profit slumped 42% to €1.6bn with Gucci, Bottega Veneta and Yves Saint Laurent all down significantly.

The company warned profits could be down 30% in the second half of the year compared with the same period last year amid “uncertainties weighing on the evolution of demand from luxury consumers in the coming months”.

François-Henri Pinault, the chair and chief executive of Kering, said: “In a challenging market environment, which adds pressure on our top line and profitability, we are working assiduously to create the conditions for a return to growth.”

Bag maker Hermès International, the British brand Burberry, Coach owner Tapestry Inc, Richemont and Brunello Cucinelli all saw their value slip on stock markets amid fears of an ongoing slump in luxury goods sales.

Luxury goods firms have seen demand tail off, especially for cheaper products bought by aspirational shoppers, as higher interest rates have brought the cost of living squeeze to the middle classes.

LVMH reported a 1% rise in underlying sales to €20.98bn in the three months to June, a third of the level expected by City analysts and a slowdown from the 3% reported in the first quarter. Group profits from recurring operations fell 8% to €10.7bn in the half year.

Bernard Arnault, the chair and chief executive of LVMH, said: “The results for the first half of the year reflect LVMH’s remarkable resilience, backed by the strength of its maisons and the responsiveness of its teams in a climate of economic and geopolitical uncertainty.”

LVMH said it has suffered from the “substantial negative impact of exchange rate fluctuations” while the slowdown in China had been offset by “substantial growth” in Japan boosted by Chinese tourists.

Wine and spirits sales fell 5% in the quarter, although that was a recovery from the 12% drop in the prior three months. Profits for the division were down by a quarter in the half year as the company said champagne sales had fallen in Europe and the US as demand returned to normal after a Covid lockdown boom. Underlying sales of cognac were down 10% amid “weak demand” in China.

Jelena Sokolova, a senior equity analyst at Morningstar, said: “LVMH’s sales in the second quarter were lacklustre, with 1% constant-currency growth, though better than weaker peers, like Burberry and Swatch, and in line with Richemont.”

She added that Chinese consumption shifted to Japan to “take advantage of currency weakness” and overall sales to Chinese consumers globally were up by more than 8% in the first half.

Watches and jewellery were hit hard, with sales down 4% in the quarter compared with a 2% drop in the prior three months and profits were down by 19% in the half year.

Sokolova said this was down to a poor performance at Tiffany which was “affected by listless bridal demand and sluggish aspirational consumer demand in the US, and sales decline among Chinese consumers”.

There was also a slowdown in growth at the group’s retail arm as poor sales at the DFS duty free airport retailer offset strong growth at Sephora, while perfumes and cosmetics sales rose just 4% in the second quarter compared with growth of 7% in the prior three months.