LVMH Moët Hennessy Louis Vuitton SE is the largest luxury goods company in the world. It recently announced an unexpected 3% drop in first-quarter sales from the prior year. The luxury market is still recovering from one it never saw coming. As a result, LVMH’s shares fell 7% Tuesday morning. Analysts had expected the company to post modest year-over-year growth, making the sales miss a stinger.
The luxury conglomerate includes high end labels such as Louis Vuitton, Moët & Chandon, and Hennessy. In recent months, it has faced dramatic regional imbalances in its sales success. Although Europe delivered a respectable 2% growth organically, other major markets faltered. Asia, not counting Japan, dropped down 11% and sales in America dropped by 3%. Japan saw a small drop of 1%.
Its leading fashion and leather goods division, which accounts for 78% of LVMH’s operating profit this year, endured a 5% drop. This segment has been increasingly important to the company’s bottom line, further steepening the hill they have left to climb.
LVMH’s Chief Financial Officer, Cecile Cabanis, had to reassure analysts on a conference call last month that the luxury company was not in crisis. She cited the continued uncertainty from trading wars that have increased the cost of doing business. “The parameters of trade tensions are changing every hour,” Cabanis stated, highlighting the unpredictable landscape that luxury brands must navigate.
Industry analysts took LVMH’s unexpectedly bad news as an opportunity to revise their future expectations downward. Even Jefferies cut their target price on LVMH’s stock to 510 euros from a previous prediction of 670 euros. Citi analysts Thomas Chauvet and Mahesh Mohankumar noted that the company’s sales were “overall below the most conservative buyside expectations.”
LVMH’s results for the first quarter were alarming. More troubling for the luxury sector at large is that other brands may be swept up in the reverberations of this sales miss. The company’s ability to adapt to evolving trade conditions and consumer preferences will be crucial as it seeks to regain momentum in a competitive landscape.