A handbag is the first thing you stop buying when money gets tight. LVMH just proved it. The Paris group, owner of Louis Vuitton, Dior, Tiffany and Sephora, sold €18.5 billion ($20.72 billion) of goods from July through September. That's growth of 1%. Its fashion arm, the one with Vuitton and Dior, shrank 5%.
The 1% matched what analysts expected. The 5% drop didn't. That division had just gotten back to growth in the spring quarter. Now it's back in the red. LVMH pointed at China. Finance chief Cécile Cabanis spoke of “a more challenging Chinese consumer backdrop” on Monday's call. The long Chinese luxury boom has fizzled. The Western middle class, the shoppers who stretch for one Vuitton bag, are squeezed by inflation. The war with Iran made that worse, the Journal's Joshua Kirby reports.
The analysts were blunt. Bank of America said luxury demand got worse in the third quarter. Berenberg wrote that “the luxury supercycle is over.” Bernstein said LVMH now has to show it can price core products for a wider public. This year the average European luxury stock has fallen more than 20%, and LVMH has done worse than most. Kering, Hermès and Prada report in the coming weeks, Prada first.
What still sold
Two parts of the group grew. Watches and jewelry, with Tiffany and Bulgari, rose 6%. The retail arm rose 8% on Sephora. Lipstick and a necklace beat a four-figure bag. That's a familiar pattern in a squeeze. We wrote on Oct. 7 that luxury stocks traded at a discount. The new fact is the sales number. The discount hasn't closed, and now the growth hasn't shown up either.
Our read
This is Cash Flow (M5) with a Behavioral note. We don't hold LVMH, and our verdict is Watch. The story has turned from a cheap stock to a shrinking one. A broad Europe index fund usually owns some LVMH, so VGK owners (11 books) have a small slice. Nothing added. The bigger lesson isn't about the stock. It's about the customer. LVMH's shoppers didn't go broke. They got careful. Inflation ate the extra, and the extra is what buys the bag.
Here's your check this week. Pull up the last three months of card statements and find your own wants line. Clothes, bags, dinners out, the upgrades. LVMH's numbers say a lot of shoppers are cutting that line already. If yours hasn't moved while prices did, it's growing on its own. Set a dollar cap for it before the next statement comes, and bring the number to your next review. Fix the gutter while it's only drizzling, and the rest of the plan stays dry.