Iran war exacerbates disappointing sales at luxury retailer LVMH

Christian Dior Couture is seeing a 'good start' for the first line under the creative direction of Jonathan Anderson. Photo: Nathan Laine/Bloomberg

Sales at LVMH’s biggest division fell at the start of the year as the Iran war curbed purchases of high-end goods in Middle East shopping hubs like Dubai, outweighing signs of improvement in China and the US.

Organic revenue at the key fashion and leather goods unit dropped 2% in the first quarter, LVMH Moët Hennessy Louis Vuitton SE said Monday, worse than analysts had expected. Overall, group organic sales rose 1%, also trailing estimates.

Hopes early this year that the luxury industry was poised to emerge from an extended slump withered with the start of the war in the Middle East, which reduced demand in the region and darkened the economic outlook globally.

LVMH shares fell as much as 3.2% in Paris. That’s after the stock had its worst start to a year on record in the first quarter, falling by 28%.

Run by billionaire Bernard Arnault, LVMH is the world’s biggest luxury group — with some 75 brands ranging from Louis Vuitton to Givenchy, Celine and Tiffany — making it closely watched as an industry bellwether. French rivals Kering SA — the owner of Gucci — and Hermès International SCA will publish sales figures later Tuesday and Wednesday, respectively.

LVMH’s business in the Middle East, which represents around 6% of total sales, suffered after a “very positive start to the year,” the Paris-based company said. The war reduced group organic growth by about 1 percentage point for the quarter, it said.

The Middle East is a highly profitable market for LVMH, and demand there is still “very much down”, chief financial officer Cécile Cabanis told analysts on a call. If not for the war, the performance of the fashion and leather goods unit would have been “flattish” in the quarter instead of negative, she added.

While Europe and Japan performed poorly in the quarter, the US and the region that includes China did surprisingly well, with organic revenue rising 3% and 7%, respectively, above estimates.

China in particular showed strength during the New Year shopping season, and trends at make-up retailer Sephora improved, LVMH added. Europe suffered from lower tourism flows to the region.

There are signs that the more exclusive brands are holding up better during the slump. 

LVMH’s Loro Piana, which caters to the wealthiest, grew by double digits in the first quarter. Similarly, Brunello Cucinelli, the manufacturer of high-end cashmere clothes, posted resilient quarterly sales last week.

While Christian Dior Couture is seeing a “good start” for the first line under the creative direction of Jonathan Anderson, who took over last year, Cabanis added that she expects the environment to remain “highly volatile” in the coming months overall.