Recent luxury earnings highlight tumultuous times for high-end brands

For the first half of the year, sales totaled €41.7 billion (~$45.3 billion). That represents 2% organic growth but a 1% decrease year-over-year due to currency effects.

LVMH CFO Jean-Jacques Guiony acknowledged during an earnings presentation that the world’s leading luxury conglomerate is operating during challenging times. And though he pointed to the ongoing appeal of brands like Louis Vuitton, he was cautious about forecasting what’s next.

“In the retail business, visibility is as good as yesterday’s sales,” he said. “Against this backdrop, we remain vigilant. But we also take comfort in the strength of our brands.”

Tuesday’s earnings presentation signaled that the luxury sector is still staging its comeback amid economic and geopolitical uncertainty. Particularly in the United States, inflation and high interest rates are keeping shoppers price-sensitive. LVMH saw just 2% organic revenue growth in the U.S. so far this year. But this slow growth in luxury is a continued trend from last year. Bain and Company found at the end of 2023 that about two-thirds of luxury brands grew, compared to 95% the year before.

So far, in 2024, LVMH has found that luxury consumers are still gravitating toward favored fashion and leather brands like Dior and Louis Vuitton. Organic revenue growth has been fueled by new collections and large-scale creative campaigns, like the Louis Vuitton Core Values campaign with Roger Federer and Rafael Nadal hiking in the Dolomites. Guiony called it “a good start to the year” for Louis Vuitton. But on the wine and spirits side, sales dropped by 9% organic revenue due to normalization in the champagne spending market. Sales were down from Covid-19 spikes but still above 2019 levels.

For some companies, the uncertainty is further complicating brand comebacks. Earlier this month, Burberry Chair Gerry Murphy didn’t mince words and called first-quarter performance disappointing. The British brand, known for its plaid and outerwear, had attempted to regain its foothold in the luxury market with the addition of new designer Daniel Lee who became chief creative officer in the fall of 2022 and put out collections for fall 2023. Yet sales have continued to slump and, in the most recent quarter, store sales fell 21%. In response, Burberry hired a new CEO, Coach veteran Josh Schulman, and suspended its dividend payments.

“The weakness of the U.S. market, deteriorating consumer confidence in mainland China and instability in Europe as well as the UK’s decline in the shopping destination have all been headwinds to our creative transition,” Murphy said.

Part of the reason for the luxury slowdown may be that high-income earners are becoming just as price-conscious as other consumers. A new study from Morning Consult found that just 7% of shoppers with incomes above $10,000 will “always” buy the luxury option.

Analyst Claire Tassin found that while 30% of U.S. adults said they believe that luxury items or services are worth the cost, that jumps to 41% when asking adults who earn $100,000 or more. Yet that consumer can still pull back on their spending if the quality isn’t right or it doesn’t feel worth the price tag. This group is the most price-sensitive when it comes to first-class travel, fine dining or luxury handbags, according to the report. “There’s less of a willingness to trade down,” Tassin said. “So they would rather have the nicer, higher-quality version or nothing at all.”

Still, the luxury segment is able to stay resilient in part because of trend-seeking, financially optimistic shoppers. These are shoppers who are willing to spend significantly to stay up-to-date with the latest trends and have positive expectations for their personal budgets for the near future. For brands, Tassin said, winning this cohort means staying current; “I think a lot of that is in the ability to keep up with those trends without alienating the core consumer.”

Ted Rossman, senior analyst at Bankrate, said current spending trends in the U.S. speak to a bifurcated economy, as well as changing priorities. Travel spending, for example, is still strong. “Some households are struggling to make ends meet, and others exhibit this demand to go to Europe or go to concerts, ” he said.

At LVMH, several highlights of the half-year report showed that luxury products are still winning over shoppers of all income brackets. Sephora, part of LVMH’s selective retail group that also includes duty-free shops DFS, is seeing record sales and gaining market share in North America as well as growth in Europe and the Middle East. Brands in the perfume and cosmetics group saw organic revenue growth grow 6% for the year, due in part to strong performance from Christian Dior, top sellers like Sauvage as well as newcomers like Miss Dior Parfum. And from an operational perspective, LVMH is an enviable spot to invest in its brands, with more than €3 billion (~$3.3 billion) on hand and an overall operating margin of 25.6%.

But one of the biggest bright spots was the company’s performance in Japan, which saw 44% growth for the first six months of the year compared to 2023. This growth, too, was motivated by deal-seeking shoppers; Guiony said the growth stemmed in part from Chinese customers who are traveling to Japan to find items at better prices. “It’s creating a bit of deflationary pressure in China itself,” he said.

Guiony said during the LVMH earnings call that this shift isn’t something that the brand had necessarily forecasted. With that, the luxury conglomerate has a somewhat tempered outlook for the rest of the year.

“It’s quite complicated and difficult to anticipate what will happen in the second half of the year,” Guiony said. “We have no reason to be pessimistic, but being optimistic would be quite bull at this point in time.”