LVMH Records Steepest Decline in 5 Years

The world's largest luxury goods group sees a continued slowdown in growth.

After the market closed on October 15th Paris time, the French luxury giant LVMH Group announced key financial data for the third quarter and the first nine months of the fiscal year ending September 30, 2024.

The data shows that in the first nine months of 2024, LVMH's revenue fell by 2% to €60.75 billion (approximately 470.73 billion yuan), which was below analysts' expectations.

Specifically, for the third quarter, the group's revenue fell by 4.4% to €19.07 billion (approximately 147.78 billion yuan), which was below the €20.01 billion expected by analysts from Visible Alpha, marking the worst performance in nearly three years. Excluding the impact of currency fluctuations, LVMH's revenue for the period fell by 3% year-on-year, a significant slowdown compared to the second quarter.

From LVMH's financial report.

Following the release of the financial data, LVMH's stock price in the US market plummeted by 11%, the largest single-day drop in five years, with the group's current market value being approximately €301.6 billion (approximately 2.34 trillion yuan).

LVMH Group stated that in an uncertain economic and geopolitical environment, the group remains confident and will leverage its strong brands and the talents of its teams to consolidate its global leadership position in the luxury goods sector once again in 2024.

Is only perfume and beauty products selling well?

LVMH Group has a total of five business segments: Fashion and Leather Goods, Wines and Spirits, Perfumes and Cosmetics, Watches and Jewelry, and Selective Retailing. According to the financial report data, in the first three quarters of this year, only the Perfumes and Cosmetics and Selective Retailing segments of LVMH achieved positive growth, while the other departments experienced a decline.

From LVMH's financial report.In it, the Fashion and Leather Goods division, which has always been seen as the main driving force, saw a 3% drop in revenue to €29.92 billion (approximately 231.86 billion yuan) in the first three quarters of this year, with organic revenue falling by 1%, which was below analysts' expectations. In the third quarter, the division's revenue fell by 5% year-on-year to €9.15 billion (approximately 70.9 billion yuan), showing a significant slowdown in performance.

The group's CFO, Jean-Jacques Guiony, revealed in a conference call with analysts that the core brand Louis Vuitton (LV) performed slightly better than the division's average, but Dior was still lagging behind.

The Jewelry and Watch division, where Bvlgari and Tiffany are located, saw revenue of €2.39 billion (approximately 18.52 billion yuan) in the third quarter of this year, with organic revenue falling by 4%. Wines and spirits dropped by 14% to €1.39 billion (approximately 10.77 billion yuan), marking the worst performance so far this year.

Amid the decline in main businesses, LVMH's Perfumes and Cosmetics business demonstrated its "resilience."

In the first three quarters, perfumes and cosmetics became the fastest-growing segment of LVMH's performance, with revenue increasing by 2% to €6.15 billion (approximately 47.66 billion yuan) against the trend, and organic revenue growing by 5%; in the third quarter, revenue was €2.01 billion (approximately 15.57 billion yuan), with organic revenue growing by 3%.

LVMH attributes the growth of this segment to the continued success of its flagship product lines, strong innovation momentum, and selective distribution policies. In the financial report, the group highlighted the contributions of brands such as Christian Dior, Guerlain, Givenchy, and Fenty Beauty to the group's performance.

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Especially the outstanding performance of the aforementioned brands in perfumes. LVMH pointed out that Sauvage (Dior Sauvage for Men) continued to achieve solid growth in the first three quarters, consolidating its position as the world's leading perfume; thanks to the L'Art & La Matière series, Guerlain is showing strong momentum in the perfume sector; Givenchy continues to grow, driven by L'Interdit Absolu perfume.

Additionally, the Selective Retailing division, where DFS and Sephora are located, also became one of the only two growing divisions of LVMH. In the first three quarters, the division's revenue grew by 1% to €12.56 billion (approximately 97.33 billion yuan), with organic revenue growing by 6%, and in the third quarter, revenue reached €3.93 billion (approximately 30.45 billion yuan), with organic revenue growing by 2%.

LVMH specifically mentioned Sephora in the financial report, stating that its performance was very strong, with strong growth achieved in North America, Europe, and the Middle East. However, the business activities of the duty-free chain DFS are still below the pre-pandemic level of 2019, with significant differences in tourist traffic between regions.

The Chinese market faces headwinds.Looking at the regions, aside from Asia (excluding Japan), LVMH has achieved growth in the United States, Europe, and Japan.

From LVMH's financial report

Especially in the Japanese region, the organic revenue increased by 36% in the first three quarters, the organic growth in the U.S. market was 1%, and the organic revenue in the European market grew by 3%.

However, the Asian market, including China, saw a 12% decline in organic revenue in the first three quarters, being the only market to record a decrease.

In response, Jean-Jacques Guiony stated, "The slowdown in China's luxury goods market, the sales of LVMH's luxury brands during the Golden Week did not bring any surprises, failed to change the market trend in the third quarter, and 45% of China's luxury goods consumption occurs overseas."

In the past few years, LVMH's revenue in the Asian market has steadily increased, growing from 26% in 2016 to over 34% in 2023, with the revenue share of Asia (excluding Japan) and the U.S. market accounting for more than half of the group's annual revenue.

However, this year, for three consecutive quarters, LVMH's performance in the Asian market (excluding Japan) has continued to be poor, with a 10% decline in sales in the first half of the year. The CFO of the LVMH group once said at the first quarter financial report meeting this year that the consumption behavior of Chinese consumers has become increasingly unpredictable.

LVMH is not the only one facing this challenge in the Chinese market. International groups including Kering, Richemont, L'Oréal, and Estée Lauder all showed an optimistic trend in the Asian market in the first half of the year.

Kering Group's retail revenue in the Asia-Pacific region decreased by 25% in the second quarter, Richemont Group achieved growth in all regions except the Asia-Pacific region, L'Oréal was the only region with negative growth in North Asia in the first half of the year, and Estée Lauder's market in Asia and the Pacific also declined by 6%...

Against the headwinds, international groups have once again entered a new round of personnel reshuffling, entrusting the heavy responsibility of turning the tide to a large number of newly appointed executives.L'Oréal China's luxury cosmetics division general manager, Ma Xiaoyu, has been promoted to Deputy Chief Executive Officer in China. In September of this year, Coty China welcomed a new general manager, Mathieu Dufresne. Amorepacific has chosen Park Tae-ho, a seasoned executive with many years of experience in retail business development and brand management, to take over the Chinese business. LVMH's Sephora has appointed Ding Xia as the General Manager of Greater China...

These successors are facing the challenge of how to achieve more robust growth and the highest return on investment expansion. The Chinese market is their first test.

There is no end to territorial expansion.

Despite the poor performance of the Chinese market, LVMH apparently has different ideas about it.

Jean-Jacques Guiony said in the financial report that LVMH will not change its existing strategy and will not shift more investments from the Chinese market to other markets. The group will continue to invest further in the Chinese market through marketing activities.

This reflects LVMH Group's consistent emphasis on the Chinese market.

In the beauty field, Asia (excluding Japan) has become LVMH Group's largest beauty and fragrance market. Its financial report shows that in the first half of this year, the fragrance and beauty business revenue in the Asia region (excluding Japan) accounted for 32% of the total revenue of this business, the European region (excluding France) accounted for 20%, and the United States accounted for 19%.

In the first half of the year, LVMH's fragrance and beauty business revenue was €4.136 billion (approximately 32.08 billion yuan), with revenue in the Asia region (excluding Japan) exceeding 10 billion yuan.

As the largest beauty and fragrance consumer market, LVMH has always regarded the Chinese market as a key investment target. For example, in terms of categories, LVMH Group continues to improve its brand matrix around high-end luxury makeup, high-end fragrances, and even high-end hair care.

In April of this year, Fenty Beauty, the "world's number one internet celebrity brand" founded by international star Rihanna, was officially launched in the Chinese market through Sephora. Subsequently, Sephora China announced that Fenty Beauty has completed a full-channel layout in 320 stores across the country.Before Fenty Beauty, brands such as Dior, Guerlain, and Givenchy under the LVMH umbrella consistently ranked in the top 10 sales on major Chinese e-commerce platforms. The introduction of the new brand Fenty Beauty helps LVMH further unleash its unique brand potential and matrix effect in China's high-end beauty market.

LVMH is also making efforts in China's high-end hair care and personal care market.

In September of this year, L Catterton, an investment company under the LVMH Group, announced the acquisition of a majority stake in the Latvian bathing and body care brand Stenders.

Over the past four years, Stenders' global revenue has grown by about 20% annually, with a sales network that includes more than 300 stores worldwide and e-commerce platforms such as Tmall, JD.com, and Douyin. In the Chinese market, Stenders has also maintained an annual growth rate of about 20%.

Data shows that over the past six years, China's high-end bathing and body care market has grown at an annual rate of 14%, and it is expected that the market size will reach 10 billion yuan by 2028.

At a time when international giants are frequently encountering obstacles in China, LVMH intends to use Stenders to open up the Chinese high-end hair care and personal care market. The expansion map of luxury groups never has an end point, and LVMH's beauty layout in the Chinese market is moving towards broader and deeper horizons.