Andrew Roberts Paris
LVMH Moet Hennessy Louis Vuitton, the world’s largest luxury goods company, fell the most on Friday in almost three years, sending shares of peers tumbling, after earnings missed estimates amid weaker consumption in Asia.
First-half profit from recurring operations fell 5 percent to e2.58 billion (R36bn), LVMH said late on Thursday, after European markets closed, less than the e2.76bn median analyst estimate.
The shares plunged as much as 7 percent in Paris, the steepest intraday drop since September 22, 2011. On Friday the shares closed 6.8 percent down at e131.65.
Asian demand weakened “quite significantly” in the second quarter, led by slower Chinese spending at home and abroad, said chief financial officer Jean-Jacques Guiony. So-called organic sales slumped 11 percent in Japan, after gaining 32 percent in the first quarter before a 3 percentage point increase in that country’s value-added tax.
“It looks as if LVMH is taking the full brunt of a subdued demand environment,” said Luca Solca, an analyst at Exane BNP Paribas. Political unrest in Hong Kong caused business to slow markedly there, while March’s disappearance of a Malaysian airliner affected sales in Singapore and Thailand, Guiony said.
“Throughout the region we’ve seen some weakness in fashion and leather,” the executive said. Asia, excluding Korea, was “under pressure”.
LVMH’s “unusual miss sends a cold chill over luxury”, Melanie Flouquet, an analyst at JPMorgan Chase, said in a note to clients. Sales in most divisions missed estimates.
Revenue growth of 4 percent at the fashion and leather goods unit trailed analysts’ projections by 3 percentage points.
Swatch Group chief executive Nick Hayek said on July 22, as the watchmaker reported its first drop in first-half earnings in five years, that Hong Kong – where wealthy Chinese have increasingly shopped to avoid the mainland’s luxury taxes – would remain fragile in the second half.
LVMH’s comments on Japan echoed Hermes International, the Birkin bag maker it partly owns, which this month reported a 6.3 percent drop in quarterly sales in the country.
Hermes shares slid 1.6 percent. The worse than expected performance of LVMH’s fashion and leather goods unit made “the whole profile a little bit riskier because it’s no longer about the brand”, Sharma said. “If you step away from logo it’s important you have the right shapes.”
LVMH is introducing more expensive products with fewer logos at handbag maker Louis Vuitton, its biggest brand, while increasing investment at some of its smaller fashion labels. The shift is designed to boost Vuitton’s appeal to the wealthiest shoppers amid competition from lower-priced rivals.
Total sales advanced 3 percent to e14bn in the half year. Analysts estimated e14.2bn. – Bloomberg