(Recasts, adds CFO comments from conference call, details,
By Astrid Wendlandt
PARIS, July 24 LVMH has seen a drop in
demand from Chinese buyers in its home market and overseas, as
well as a slowdown in Hong Kong due to political unrest, the
French fashion, spirits and cosmetics group said on Thursday
after posting below-forecast second-quarter sales and profits.
The world's No.1 luxury group said growth in sales from
Louis Vuitton, its main cash cow, had dropped in China in the
second quarter from the first, while revenues from Chinese
tourists declined in major European markets such as France.
It also said fewer tourists, particularly from China, were
shopping in Hong Kong due to the pro-democracy protests there.
. The former British colony is where many leading
luxury brands generate more than 10 percent of their global
"After May, we have seen the level of business there slowing
down markedly," LVMH Chief Financial Officer Jean-Jacques Guiony
told analysts in a conference call, adding that the group's
duty-free unit DFS had suffered particularly.
Guiony's comments echoed watch specialist Swatch Group
which voiced concerns on Tuesday about the outlook in
Hong Kong in the near term.
Regarding mainland China, Guiony did not provide an
explanation other than pointing to a general difficult business
climate affected by the government's efforts to crackdown on
corruption and conspicuous spending.
Louis Vuitton, the top luxury brand by revenue which
generates more than half of LVMH's operating profit, has also
been struggling to counter a growing perception among emerging
market customers that it has become too ubiquitous.
The brand's sales growth in the second quarter collapsed to
zero from 9 percent the previous three months.
Louis Vuitton has been trying to win back customers and
regain exclusivity by strengthening its higher-end offering with
leather goods and smart designs but its efforts have been taking
time to pay off.
"Louis Vuitton has done a lot to innovate its products, but
consumers - especially in China - are still not embracing it in
full," Luca Solca, luxury goods analyst at Exane BNP Paribas
LVMH's comments contrasted with a more upbeat trading update
from rival Burberry earlier this month which said it
continued to enjoy solid sales growth in China.
UBS, which has a buy rating on LVMH shares, said it was
going to change its full-year earnings forecasts "given the
much-weaker-than-hoped-for start of the year and the fact that a
number of adverse factors will likely weigh for some time,
including a slowdown in demand in Greater China, including
surprisingly mainland China."
LVMH's sales growth in the second quarter reached 3 percent
on a like-for-like basis, below analysts' expectations for 5-6
percent, while the group's operating profit in the first half
fell to 18 percent from 19.8 percent last year.
Guiony said part of the profitability drop was due to
adverse currency movements and the slower sales growth.
LVMH's operating profit from recurring operations reached
2.576 billion euros ($3.47 billion), down 5 percent from the
same period a year earlier.
LVMH said trading in Europe was resilient "despite a
still-challenging economic environment" but sales growth stalled
in the second quarter, versus a 1 percent increase in the first
Revenue growth remained solid in North America but fell 11
percent in Japan, against growth of 32 percent in the first
quarter, during which sales were boosted by advanced purchases
ahead of a VAT increase on April 1.
LVMH proposed an interim dividend of 1.25 euros to be paid
($1 = 0.7425 Euros)
(Editing by Alden Bentley)