LVMH, the world’s biggest luxury group, showed little sign of weakening demand for its high-end handbags and champagne in the third quarter despite growing fears over the global economy.
The company controlled by Europe’s richest man, Bernard Arnault, reported quarterly sales of €19.8bn on Tuesday, ahead of analysts’ expectations for €19.1bn, according to FactSet data.
When stripping out the effect of acquisitions and currency swings, sales were up 19 per cent from the same period last year and matched the pace of expansion in the second quarter.
“Despite everything going on in the global economy, the demand for our brands remains very vigorous,” said Jean Jacques Guiony, LVMH’s chief financial officer.
Driving the growth was an acceleration at LVMH’s all-important fashion and leather goods division, home to the Louis Vuitton and Christian Dior brands that generate two-thirds of group operating profit. Sales at the unit rose 22 per cent, beating analysts’ expectations for a gain of 16 per cent.
Europe enjoyed a particularly strong 43 per cent growth in sales, helped in by American tourists whose splurging during their summer holidays was buoyed by a strong dollar. The US market rose 19 per cent, while Asia (excluding Japan) was the weakest region with growth of just 2 per cent as Covid-19 restrictions disrupted the Chinese market.
Investors have been anticipating that luxury goods sales would slow because of recession fears globally, marking a break from the past two years which saw wealthy consumers in the US and China quickly resume shopping after the initial shock of the Covid-19 pandemic.
The IMF on Tuesday cut its prediction for world economic growth from 3.2 per cent in 2022 to 2.7 per cent in 2023, saying there were “stormy waters” ahead because of the war in Ukraine, inflation and the energy crisis.
Shares in LVMH have fallen about 16 per cent this year, compared with a slide of 19 per cent for smaller rival Hermes and 37 per cent for Gucci-owner Kering.
But the reckoning has yet to begin for bellwether LVMH, which is the first luxury group to publish quarterly sales. Rivals Hermes and Kering do so on October 20.
HSBC analyst Aurelie Husson-Dumoutier warned against complacency in a recent note. “Luxury is unfortunately not recession proof,” she said, and predicted a slowdown next year. “Resilience will be tested starting in the fourth quarter this year.”
Asked whether LVMH was bracing for a downturn by contemplating cutting costs at its brands, Guiony said that was not at all the case. Instead, brands were planning to boost marketing and outreach to high-end clients during the key shopping season that runs from the US Thanksgiving celebration to Christmas and the Chinese new year.
“We’ve not started belt tightening since there is no need to,” he said. “We must continue to invest because the growth is still there.”
