China drags down luxury leader LVMH

LVMH is suffering from reduced sales in China: its worldwide sales rose just 1 % last quarter, due to a sales drop of 14 % in Asia.

Lower profits

China, since long the main engine of growth for the luxury industry, is sputtering as middle-class consumers are spending less due to the country’s economic slowdown. European fashion houses are feeling the effects: after profit warnings at Burberry and Hugo Boss, LVMH now also admits disappointing results.

Second quarter sales were almost stagnant at 1 % organic growth, to 20.98 billion euros. A quarter earlier, growth was still 3 % and analysts had expected the same now. Operating profit went down to 10.7 billion euros in the first half, mainly due to pressure on the drinks and accessories divisions. However, Bernstein analyst Luca Solca said the profit drop was mainly due to exchange rates and investments in retail.

In “Asia minus Japan”, sales fell 14 %. Sales in Japan, on the other hand, rebounded as the weak yen attracted many more tourists to the country. Chinese are also flocking there eagerly – even to buy Louis Vuitton and Dior. Similarly, sales in Europe and the United States went up again.

In the second half of the year, LVMH expects stronger growth, although the group remains cautious. In the Financial Times.