LVMH sales return to growth as China demand improves

By Tassilo Hummel and Mimosa Spencer

PARIS, Oct 14 - LVMH's LVMH.PA sales increased by 1% in the third quarter, driven by improved demand in China, offering some solace to a luxury goods sector grappling with a prolonged slump.

The rise reported by LVMH on Tuesday represents the first quarter of growth this year for the world's largest luxury goods group, which is seen as a sector bellwether with operations spanning fashion, alcohol and retail.

LVMH said in a statement that trends in Asia excluding Japan, a market dominated by China, showed "noticeable" improvement nine months into the business year.

"Mainland China turned positive in Q3," LVMH Chief Financial Officer Cecile Cabanis told analysts in a call.

Cabanis cautioned that LVMH faces headwinds in the fourth quarter, including unfavorable currency rates and ongoing economic uncertainty, but said the group was confident with the new creative direction its brands are taking.

Sustained financial improvement will "take time" with "gradual sequential improvement", added Cabanis.

LVMH US SHARES JUMP

LVMH's U.S. shares were up 7.5% on Tuesday.

"The results indicate a combination of self-help and slightly more positive Chinese demand, possibly on a U-shaped recovery trajectory," said Bernstein analysts, noting a "strong beat" across divisions.

Sales at the fashion and leather goods division, home to flagship brands Louis Vuitton and Dior and accounting for more than two-thirds of profits, were down 2% versus a year earlier.

The trading update beat a Visible Alpha consensus cited by HSBC that had seen flat overall sales and a 4% decline for the fashion and leather division.

Quarterly sales at the conglomerate controlled by French billionaire Bernard Arnault, which also owns brands such as jeweller Tiffany, Moet & Chandon champagne and beauty retailer Sephora, rose 1% to 18.28 billion euros ($21.17 billion).

The decline in the group's all-important fashion and leather division in the July to September period marked an improvement from the 9% drop posted after the second quarter.

MORE INVESTORS TURN POSITIVE ON LUXURY

The luxury sector has undergone a prolonged slump since the winding down of the post-pandemic boom.

Price hikes, which fuelled profits at labels including Louis Vuitton and Dior in recent years, have weighed on appetite for handbags, especially from less wealthy clients.

Economic factors including U.S. President Donald Trump's tariffs, the continuing real estate crisis in China and a recent surge in gold and silver prices, driving up production costs for jewellery, have added to the headwinds.

However, the update from the first major player in the $400-billion luxury industry to report third-quarter sales comes as more investors have turned positive on the sector.

Analysts have released a series of optimistic notes, saying brands' push for more affordable products and what Morgan Stanley called a "burst of creativity" from new designers at most houses could mean the worst is over.

LVMH recently undertook a string of personnel changes as Arnault moved around some of his lieutenants and designers in the face of a challenging business climate, including at Dior, Celine, Loewe and most recently Fendi.

Shares in LVMH are up 13% since the group's last trading update on July 24.

The rally lifted LVMH, which briefly lost its crown as France's most valuable company to rival Hermes HRMS.PA this year, back to the top as analysts began seeing positive signs for luxury sales beyond the very high end.