LVMH Q2 Focused on Managing Demand for Luxury Goods Instead of Being Economists

In a year where most consumers have experienced growing financial stress and had to alter their spending habits in the face of rampant inflation, the well-heeled customers of the world’s largest consortium of luxury brands, LVMH, are on a totally different track.

“All business groups achieved double-digit organic revenue growth over the period,” the $300 billion Paris-based company said of its results for the first half of 2022, which it succinctly characterized as “excellent.”

Specifically, beneath the 28% headline increase in total sales collectively reported by Moët Hennessy Louis Vuitton, the company’s Fashion & Leather Goods business, which accounts for half its revenue, saw sales rise 31% so far this year, followed by 20, 22 and 23 percent respective topline growth at its Perfume & Cosmetics, Watches & Jewelry, and Wine & Spirits divisions. 

Further delineating the experiential chasm that currently exists between LVMH’s luxury consumers and pretty much the rest of the world was the liberal usage of now-scarce superlatives such as “exceptional momentum” or “remarkable performance” and “rapid growth,” despite a business climate it called disrupted. 

Luxury vs Recession

One question that emanates from this starkly contrarian corporate and sector-specific performance is not so much why luxury’s resilience is happening, but rather, whether or not the world’s wealthiest consumers will scale back their consumption and high-cost habits as concerns about inflation and recession mount in a world filled with geopolitical tensions in the East and West.

“We are not particularly gloomy and pessimistic about the outlook,” LVMH CFO Jean-Jacques Guiony told investors Tuesday (July 26) on the company’s earnings call, acknowledging widespread talk about a coming recession but not playing into it. 

“We are not economists, we are managing a business and [that] means taking advantage of the strength in the demand,” he added, after delivering a $10 billion profit from continuing operations that was up 34% through the end of June.

If — and when — demand for what LVMH calls “high quality products” should weaken, Guiony said the company would “react swiftly, cut costs and delay store openings” exactly as it has in other down times, but noted this does not appear to be one of those periods just yet.

“So again, we are not making any economic forecasts. That’s not our job. We are trying to manage the business for the growth that it can generate,” Guiony said, pointing to a luxury uptrend that has lasted for close to a decade. “I would say we are planning the business for growth. If things happen to be not as good as we anticipated, we’ll react,” he said.

European Vacations

To be sure, the ongoing state of health restrictions in China as well as continued delays in the supply chain continue to present challenges for LVMH as they are for all multinational brands and retailers.  

That said, the French owner of dozens of different premium brands has been able to somewhat compensate for its setbacks in Asia with a surge in summer tourism that’s been led by a legion of American travelers that are armed and looking to spend their suddenly strong U.S. dollars on everything from designer bags and watches to champagne.

“Champagne volume rose 16% in the [first half]. The strong demand can largely be attributed to the reopening of restaurants and renewed influx of tourists in the U.S. and Europe, as well as price increases which have also contributed to revenue gains,” LVMH Investor Relations lead Chris Hollis said on the call.

In addition, Hollis called out the omnichannel innovation and logistical advancements at the company Sephora brand, as well as the 250 store-in-store locations that it has opened with Kohl’s so far this year as drivers of success behind its retail operations.

Taken together, it may come as no surprise that LVMH is not planning any major changes at a time when things look to be running smoothly, with the Group maintaining its focus on “continuously strengthening the desirability of its brands” through exceptional product quality and excellence of their distribution ahead of a year that will mark the company’s 100th anniversary in 2023.

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