LVMH sales tick up as US luxury demand offsets hit from Iran war

Sales at luxury giant LVMH edged higher in the second quarter as strong demand from affluent U.S. shoppers helped offset weaker spending in Europe, where tourism has been hit by the Iran war.

Sales at the owner of Louis Vuitton, Dior and Moet & Chandon champagne rose 3 percent when adjusted for currency swings to EUR19.5 billion (HK$173.9 billion), broadly in line with analysts' consensus estimate, according to Visible Alpha.

Growth was driven by the U.S., where sales rose 6 percent after a 3 percent increase in the first quarter, LVMH said, citing strong demand fuelled by newly created wealth, such as from the AI and technology booms.

The Watches & Jewellery division was LVMH's fastest-growing business, with organic sales up 11 percent, accelerating from 7 percent in the previous quarter. Tiffany and Bulgari posted growth in the mid-teens as wealthy shoppers continued to favour jewellery over soft luxury categories.

"What you've seen is that despite continued instability in the macro environment, trends improved across all geographies in H1 and where wealth is created, consumer appetite for luxury and for our products in particular is strong," finance chief Cecile Cabanis said on a call with analysts, striking a more confident tone than after more muted first-quarter results.

FASHION AND LEATHER GROWING MUCH SLOWER THAN HARD LUXURY

The fashion and leather goods division, which generates the bulk of LVMH's operating profit, posted 1 percent organic growth, mostly thanks to U.S. consumers. That was the segment's first quarterly increase in two years, but fell short of analysts' expectations for a 1.7 percent rise.

The French group, led by billionaire Bernard Arnault, said the Iran war reduced growth in the division by 1 percentage point, but added that Dior was gaining momentum under new creative director Jonathan Anderson, who beat rival Chanel to design Taylor Swift's wedding dress.

In Europe, sales were flat in the quarter, stabilising after a decline in the first three months of the year as conflict in the Middle East weighed on tourism.

In a rare public comment, Arnault dismissed on Sunday media reports of a bitter succession battle among his five children, insisting his family remains united.

LUXURY BRANDS FOCUS ON U.S. MARKET

European luxury brands have stepped up their focus on the United States, opening stores and staging fashion events to tap wealth generated by near record-high stock markets.

However, questions remain whether LVMH's relatively modest sales growth is enough reassure investors that the US$400 billion (HK$3.12 trillion) luxury sector is decisively emerging from a two-year downturn.

"We wonder if this could be good enough to sustain the share price and get investors to stand up and pay attention," Bernstein analysts said in their first reactions to investors.

LVMH's U.S.-listed shares were down 1.6 percent at 1704 GMT, having briefly slipped to their lowest since June last year.

Shares in the French group have fallen 28 percent year to date, making LVMH one of Europe's worst-performing large-cap stocks.

"Net, we view this as a reassuring print particularly on better than expected margins and earnings," RBC analysts said in a note. "However questions will likely be asked around whether (second half) consensus expectations are achievable given increasingly tougher comparative".

For the first half, LVMH's sales rose 2 percent on an organic basis, but fell 3 percent on a reported basis to EUR38.6 billion. Over the same period, profits from current operations fell 4 percent to EUR8.7 billion, as currency moves reduced earnings by about EUR700 million, though the operating margin was broadly stable at 22.5 percent.

Rivals Kering and Hermes report results on Tuesday and Wednesday respectively.

Reuters

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