LVMH Slide Signals No Quick End to Big Luxury’s Malaise

Amid a slew of bad news headlines at its top brands, from data leaks to labour exploitation, luxury giant LVMH tried hard to tell a good news story when it published its latest earnings report this week.

Yes, sales were down 4 percent in the second quarter — with a 9 percent slide in the group’s core fashion and leather goods division weighing heavily on overall performance — but that’s not so bad in the current economic context, the group suggested.

Sure, profits slid 15 percent in the first half, but the group has made significant steps to preserve margin by reigning in costs; even fashion show budgets are under the microscope, chief financial officer Cécile Cabanis told analysts.

“LVMH showed good resilience and maintained its powerful innovative momentum despite a disrupted geopolitical and economic environment,” the group said in a statement.

Luxury analysts have grasped on to glimmers of hope. “Boy it’s rough… but won’t get rougher” was the headline takeaway from HSBC’s earnings rundown. The silver lining is that the latest quarter could prove a trough for luxury’s bellwether stock and many of its peers in the space, the bank’s note went on to say. But the path to recovery from luxury’s bruising slump is still likely to be a long slog. HSBC isn’t expecting a proper sales pick up until 2026.

In other words, the big luxury downturn isn’t over yet.

A pandemic boom in luxury spending has given way to more cautious consumption amid a gloomy economic climate, particularly in the key China market, weighing heavily on sales at many brands. And the macroeconomic outlook for the rest of the year remains uncertain at best.

In its latest results, LVMH flagged ongoing pressure on sales in Asia, a one-time driver of staggering luxury growth. In the US, President Trump’s trade war remains an unpredictable headwind. At present, higher duties (which could come in as high as 30 percent for European-made luxury goods) are set to come into effect from Aug. 1. Trade negotiations to try and bring that number down are ongoing.

But many of the industry’s woes are self-inflicted and LVMH is no exception.

“I don’t buy the explanation that this is just a macro issue,” said Bernstein analyst Luca Solca.

Fashion’s own goals include whopping price increases without corresponding product innovation, leading aspirational customers in particular to pull back.

To be sure, not all luxury labels are suffering equally. LVMH arch-rival Hermès has proved solidly resilient, leading a cohort of businesses that appear to be beating the slump. Earlier this year, it supplanted LVMH as luxury’s most valuable company.

Top-end brands like Hermès and Brunello Cuccinelli, which reported sales up by 10.7 percent in the first-half, are less exposed to aspirational clients, but they have also taken a more cautious approach to price hikes, retaining a sense of trust in their value propositions. Other outperformers include Prada’s trendy outlier Miu Miu.

Clearer signs of the growing gap between luxury’s winners and losers are set to emerge next week, when a flurry of luxury heavyweights, including Gucci-owner Kering, Hermès and Prada, are due to report. Analysts are anticipating a wide range of results.