The news: LVMH Moet Hennessy Louis Vuitton (LVMH) posted Q1 earnings well above expectations as recovery in China helped offset softening demand from American consumers.
- Organic revenues grew 17% year-over-year (YoY) to 21.04 billion euros ($22.12 billion); analysts polled by FactSet expected 20.02 billion euros ($21.05 billion).
- Sales growth was slowest in the US (8% YoY), while Japan (34%) and Europe (24%) grew fastest.
- Asia revenues excluding Japan rose 14% YoY.
Business in China picks up: LVMH is the latest luxury company to note a resurgence in spending among Chinese consumers.
- Sales of fashion and leather goods in China grew by double digits in Q1, CFO Jean-Jacques Guiony said on the company’s earnings call, making LVMH “extremely optimistic” about its growth prospects in the region this year.
- Likewise, Prada Group CEO Andrea Guerra noted that China is again “an engine of growth,” a sentiment echoed by Brunello Cucinelli and Canada Goose.
- Luxury brands are also getting a boost from Chinese tourists; Guiony said “offshore” sales from Chinese consumers in places like Hong Kong and Macau are growing faster than those from the mainland.
- Personal luxury retail sales in China will jump 12.9% this year, per our forecast.
US demand softens: While the US continues to be LVMH’s second largest region by revenues, business is beginning to slow as shoppers opt for more affordable products, like fragrances and makeup, over jewelry and designer bags.
- Most of LVMH’s Q1 growth in the US came from Sephora, which is benefiting from resilient beauty demand as well as a vastly enlarged brick-and-mortar presence via a partnership with Kohl’s.
- While favorable exchange rates have driven more Americans to purchase luxury goods overseas, Guiony said sales to the American “cluster” remained largely flat in Q1.
- Kering saw a similar trend, CFO Jean-Marc Duplaix said, noting that “aspirational clients in particular are sort of taking a break” as savings built up during the pandemic run low.
- Nevertheless, Kering plans to expand its US presence with stores in medium-sized cities like Nashville and Charlotte where it sees long-term opportunities.
- We expect US personal luxury sales to grow by 6.7% this year, although growth will slow significantly until at least 2026.
The bigger picture: While the luxury market is not wholly immune to economic uncertainty, pent-up demand from Chinese consumers, as well as continued strength from Japanese, Korean, and Middle Eastern shoppers, will make up for any slowness in the US.
- Deeper penetration into areas where spending remains strong, such as beauty and fragrance, will also give luxury brands another growth avenue—an opportunity Kering has seized with its new beauty division.
Go further: Read our report on how luxury brands can weather uncertainty in the US and China.
