LVMH’s first-half 2024 results showed relatively consistent trends in the U.S., with the exception that Sephora’s growth slowed. (We estimate by half.) Placer also shows that moderation in sequential traffic (2Q 2024 versus 1Q 2024) and brands have recently called out slower category growth as well. (This was also our expectation at the beginning of the year.) Management also called out significant market share gains for Sephora in the US suggesting that Ulta Beauty continues to feel the encroachment (as well as others). Ulta’s traffic momentum appears to be consistent with Q1; the pickup at Kohl’s is intriguing.
LVMH management described the Tiffany brand as being softer due to weak demand from the aspirational consumer, as well as bridal (i.e., share loss to lab-grown diamonds). The Fashion & Leather segment was still soft in the U.S. (i.e., again no pickup by the aspirational luxury consumer, which is a negative read for Dillard’s, Macy’s, and Nordstrom, but also no different than it has been for over a year). That said, management cited slightly stronger results for the division quarter-over-quarter, which reflects an easy comp for its better & best product as 2023 was all about the affluent being off on international holiday. This is a positive data point as it relates to prestige luxury spending in the U.S. and for Bloomingdale’s, Saks, and Neiman Marcus. We show this buoyancy in our Luxury Index, below.
The surprise in the results was the 20%+ decline in China, across the entire business, a deterioration without any signs of bottoming. (The Chinese that can, are flocking to Japan to buy LVMH product given the sharp decline in the Yen. Those that can not “flock” are less likely to be LVMH customers, rendering the Mainland LVMH business under enormous pressure, especially given the weak economy and building deflation.) This means that LVMH will continue to train its sight on the US prestige luxury consumer and invest to capture their spending, a plus, plus for the shopping centers and trade areas that provide access to this customer.
For perspective, the China story is not just LVMH, Burberry, Hugo Boss, and Kering guided to a worsening slowdown. For Q2, Kering reported a -20% decline for Gucci and a -9% decline for Saint Laurent. The Asia Pacific region went from -19% in Q1 to -25% in Q2. The sales declines are leading to severe profit declines. For Gucci, operating margin declined from 35% to 25%; this is a business that should have margins over 40%. Saint Laurent’s margins declined to 22%. Like LVMH, the worsening was centered in Asia Pac. Kering’s U.S. was down, but in-line with Q1’s rate. All of these other luxury brands will do what LVMH’s is, train their sights on the US high-income consumer. Hermès also reported results and their America’s business was +13.7%; vs. 2019, the business is now up by 2.3X; Hermès serves the affluent-affluent.
