China rebound not enough to save LVMH, Richemont shares from sliding

The tables have turned: The Americas region, which buoyed luxury brands through the pandemic as lockdowns ravaged China, has now become a sore spot amid recession risks. While big spenders are holding up and continuing to purchase statement pieces, aspirational shoppers in the US are spending less on entry-level items, deterred by economic uncertainty. As LVMH’s Chief Financial Officer Jean-Jacques Guiony said on the July earnings call, “Last year, [LVMH] was pulled up by the United States because China was slowing down. And this year, the United States is slowing down, yes, but we are drawn by Asia. This geographical balance is absolutely fundamental.” “Last year, [LVMH] was pulled up by the United States because China was slowing down. And this year, the United States is slowing down, yes, but we are drawn by Asia. This geographical balance is absolutely fundamental.” According to Bain & Co., the global personal luxury goods market is still set for further growth, projected to swell by 5 to 12 percent this year. Here’s how LVMH and other luxury businesses are leveraging their different regions to navigate these challenging times. LVMH wines and spirits stumble as US luxury spending slows The world’s largest luxury group recorded revenue of €42.2 billion (46.6 billion) in the first half of 2023, up 15 percent year over year. LVMH Chairman and CEO Bernard Arnault attributed these results to the strong creative momentum of the company's maisons, including the “enthusiastic reception given to Pharrell Williams’ first fashion show for Louis Vuitton and the reopening of the New York ‘Landmark’ of Tiffany & Co.” Pharrell’s show reached more than 1.1 billion views on social media, LVMH stated, and was well received by Chinese fans at home and in Paris. As expected, the fashion and leather goods division had an “outstanding performance,” boasting organic revenue growth of 20 percent. This was led by Louis Vuitton, Christian Dior, Loro Piana and Loewe — the latter of which was recently named the hottest fashion brand of Q2 2023 by the Lyst Index. For the release of its Paula’s Ibiza 2023 collection, Loewe created a castle installation at the Shanghai Strawberry Music Festival and launched a series of rainbow-colored pop-up boutiques around the country, including in Beijing, Shanghai and Xiamen. The resumption of international travel was also a boon for the business. Returning to profit, DFS benefited in particular from the return of tourists to Hong Kong and Macau, while the La Samaritaine in Paris welcomed an increasing number of Asian visitors. However, these accomplishments were clouded by a slowdown in the US, where revenues rose just 3 percent — compared to 24 percent over the same period in 2022. On July 26, shares of LVMH fell 5.2 percent in its biggest one-day percentage loss in nearly 17 months while the pan-European STOXX 600 index shed 0.5 percent. With “aspirational shoppers not spending as much as they used to,” as Guiony described, sales of Cognac took a hit. Recent visits to China by Bernard Aranult this summer suggest a renewed focus on the Asia Pacific market, which may be necessary to balance out the sluggishness in the states. Richemont sees triple-digit growth in Hong Kong, Macau but investors still concerned The world’s second biggest luxury firm also had a solid start to the financial year, posting a 19 percent year-over-year increase in sales to €5.32 billion (5.98 billion) at constant exchange rates in the first quarter ended June 30, 2023. Richemont’s Asia Pacific region boasted the strongest performance with a 40 percent rebound in sales, thanks to double-digit growth in mainland China and triple-digit growth in Hong Kong and Macau. Europe also performed well, sustained by domestic demand and tourist spending from American, Middle Eastern and, more recently, Chinese clients. These markets helped to offset the 2 percent sales contraction in the Americas. In terms of business divisions, jewelry maisons Buccellati, Cartier and Van Cleef & Arpels recorded the strongest sales growth, up 24 percent, while specialist watchmakers jumped 10 percent. During the three-month period, Cartier was particularly active on the global stage, hosting its month-long “Into the Wild” exhibition in Guangzhou, backing French photographer and filmmaker Raymond Depardon’s first solo exhibition in Shanghai, and presenting awards to impact-driven entrepreneurs as part of its Cartier Women’s Initiative in Paris. However, these results did not impress investors as Richemont shares fell 10.4 percent in their sharpest one-day percentage fall in over a year following the earnings announcement on July 17. The Switzerland-based conglomerate did not provide an outlook for the rest of the year but raised concerns that China’s macro economy “could impact both high-end and aspirational consumers” on a call with analysts. Moncler S.p.A. hits €1 billion mark in first half for the first time The Italian luxury fashion group reported consolidated revenues of €1.13 billion (1.25 billion) in the six months ended June 30, 2023, up 24 percent year over year at both current and constant exchange rates. This is the first time in the company’s history that group revenues have surpassed the €1 billion mark in the first half of the year. In Asia, Q2 revenues accelerated 55 percent year over year, thanks to an easy comparable base in the Chinese mainland, which saw one-third of local stores close in April and May of 2022. That doesn’t mean the group wasn’t proactive about expansion: Not only did the Moncler brand open a new location at Shanghai’s Plaza 66 mall and participate in Tmall’s 618 Festival for the first time, it also released a collection with Hiroshi Fujiwara's streetwear label Frgmt. In contrast, the Americas region declined by 5 percent year over year in the second quarter, largely due to the impact of the conversion of Nordstrom from a wholesale to a hybrid business model. “Excluding the impact of the Nordstrom conversion, growth in the Americas would have been positive in the second quarter,” Moncler Group stated in a press release. In light of recession risks, the company plans to stay agile and reactive. In 2023, Moncler Group aims to strengthen its flagship brand by embracing new creative talents and launching distinctive events, while helping Stone Island penetrate less mature regions with high potential under the leadership of the latter's newly-appointed CEO.

China rebound not enough to save LVMH, Richemont shares from sliding

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Published July 27, 2023

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China rebound not enough to save LVMH, Richemont shares from sliding