PARIS — LVMH is seeing green shoots in China.
The luxury conglomerate said its sales in Asia took a hit in the third quarter as Chinese customers digested the effects of a stock market tumble and a surprise 3 percent devaluation of the Chinese yuan versus the U.S. dollar. Louis Vuitton Moët Hennessy chief financial officer Jean-Jacques Guiony on Tuesday predicted those effects should fade soon.
Growth in business from Chinese customers at home and abroad was roughly flat in the third quarter after posting high single-digit growth in the first six months of the year, he said in a conference call with analysts.
“We know perfectly that when a depreciation of such magnitude takes place, it has an impact on our business. China was no exception to that. We also know that this doesn’t last for very long. It’s a matter of months,” he forecast.
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The group, which owns brands including Fendi, Givenchy, Guerlain, Bulgari and Dom Pérignon, registered low double-digit growth in revenues from Chinese customers during the Golden Week national holiday from Oct. 1 to 7, Guiony noted. “We expect the market and the business with Chinese people to normalize pretty soon,” he added.
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His comments failed to allay analysts’ skepticism and shares in LVMH dropped 3.2 percent to close at 161.25 euros, or $183.35 at current exchange, on the Paris Stock Exchange on Tuesday. The fall in the share price came a day after the company published third-quarter revenues showing a slowdown in organic growth in its key fashion and leather goods division to 3 percent from 10 percent in the second quarter.
As reported, group revenues rose by 7 percent in organic terms in the three months ended Sept. 30, compared with an increase of 9 percent in the previous three months. In reported terms, revenues were up 16 percent in the third quarter, reflecting a slightly lower positive impact from the weak euro.
By region, organic growth in Asia-Pacific, excluding Japan, declined 8 percent in the third quarter following a 5 percent drop in the second trimester. Japan saw organic growth rise 24 percent during the period, after posting a 34 percent jump in the second quarter.
The U.S. was up 12 percent, unchanged versus the second quarter, while Europe gained 12 percent, down from 14 percent previously.
Louis Vuitton, the group’s star brand which accounts for roughly half its operating profits, registered slightly lower growth than the fashion and leather goods division average in the third quarter, according to Guiony. Vuitton posted double-digit growth in Europe, although slightly lower than in the first half, and midsingle-digit growth in the U.S., also below first-half levels. This was due mainly to declining demand from South American clients, who took advantage of a drop in their currencies to buy locally.
Louis Vuitton is poised to raise prices in Brazil, where its products were cheaper than in the U.S., in the third quarter, the executive noted.
Meanwhile, Vuitton’s performance worsened in Asia-Pacific, where the sales decline deepened in the third quarter, while Japan saw very strong double-digit growth.
“The Japanese business has really benefited from very favorable touristic trends but also local trends. We’ve seen the Japanese customers being positive locally for the first time in many quarters,” Guiony said, adding that raising prices in Japan was “not on the agenda.”
Globally, the Monogram range of handbags and small leather goods outperformed other lines at Vuitton during the quarter.
So far this year, the brand implemented a 3 percent price increase on all products in late February and early March, followed by a further 3 percent price increase on leather goods in late June and early July.
“Due to the fact that we benefited from an improvement in the overall currency situation, we found it extremely hard to pass on price increases, so the contribution to growth coming from prices has been the lowest I’ve seen for many, many years,” Guiony said.
He predicted Louis Vuitton would maintain its momentum in the coming quarters, despite tougher comparatives due to the impact of the 160th anniversary collection it launched in late 2014 with designs by the likes of Karl Lagerfeld and Cindy Sherman.
“We’re investing heavily into new products. The new products that we have launched have been quite successful, so we are not particularly worried that the comparison base, particularly from a qualitative viewpoint, will be difficult to match,” he said.
Guiony was more cautious regarding the ongoing repositioning at U.S. fashion labels Marc Jacobs and Donna Karan and Swiss watch brand Tag Heuer.
“We don’t want to exert undue pressure on our managers by setting a time target that would make their life even more complicated. These businesses are working on fairly important challenges and they have to, for some of them particularly, to reinvent themselves or to find a different way to operate,” he said.
He noted that during New York Fashion Week, Maxwell Osborne and Dao-Yi Chow presented their first collection for DKNY, while Marc Jacobs unveiled its first collection since merging its Marc by Marc Jacobs contemporary line with the main Marc Jacobs line.
“We’ve seen some quite amazing runway shows lately. I’m very confident that from a product viewpoint, we are in the right direction. Doing nice runway shows and convincing department store buyers to take risks on the new product are two different things, so it’s going to take a few seasons, I would say,” he cautioned.
Guiony added that Tag Heuer was the brand “where improvement is the closest,” noting that it has cleaned out its distribution network and its new products were gaining acceptance among retailers. Tag Heuer is set to unveil its smart watch, developed in partnership with Google and Intel, in New York on Nov. 9.