On Tuesday local time, French LVMH, the world's largest luxury goods giant,$LVMH Moet Hennessy Louis Vuitton (LVMUY.US)$announced its second-quarter results, with sales and profit indicators lower than expected. The financial report shows that LVMH, like other companies, is struggling to grow amid a slowdown in global demand for luxury goods.

However, the company is not very pessimistic about the prospects for Chinese consumer demand. Although the company's demand in the Chinese market has declined, sales in Japan have soared dramatically. The company believes that this is because many Chinese tourists turned to Japan for shopping amid the sharp depreciation of the yen.

LVMH's growth is sluggish

The financial report shows that in the second quarter ending in June, LVMH's revenue grew organically by 1% to 20.98 billion euros, slower than in the first quarter and lower than the general expectation of 3%. LVMH's operating profit for the first half of the year was 10.7 billion euros, also lower than Wall Street analysts' expectations.

In terms of categories, LVMH's largest revenue department, the fashion and leather products department, saw organic sales growth slow to 1% in the second quarter, with operating profit down 6%. The department includes fashion and leather goods businesses such as Louis Vuitton (LV), Dior, Celine, Fendi, etc.

LVMH perfume and cosmetics business sales in the second quarter grew by 4%, including boutique retail sales growth of 5% including cosmetics retailer Sephora. However, the watch and jewelry department declined by 4% year-on-year, and the wine and spirits department declined by 5% year-on-year.

LVMH CEO Bernard Arnault said:"The performance in the first half of this year reflects the extraordinary resilience of LVMH...While remaining vigilant in the current situation, the Group will enter the second half of the year with confidence, and will further consolidate its global leadership position in the luxury goods industry in 2024 based on the agility and talent of its team."

Consumers head to Japan for "explosive purchases"?

The demand in the Chinese market is still the focus of attention for major luxury goods companies. Last week, the performance of several European luxury brands has issued a warning of demand in the Chinese market, however, LVMH still relatively maintains confidence.

LVMH believes that the company's sales decline in the Chinese market is partly due to Chinese consumers traveling abroad, especially to Japan, for consumption.

This is especially evident in LVMH's regional sales figures: By region, sales in Asia (excluding Japan) fell 14%, mainly due to the drag from the Chinese market; but in Japan, LVMH's sales soared 57% year-on-year.

In addition, LVMH's sales in the United States increased by 2% and in Europe by 4%.

"Currently, we are still seeing many Chinese customers traveling to Japan, which basically shows the interest of mainland customers in our brand: This interest does not show signs of waning," said LVMH CFO Jean-Jacques Guiony, "Predicting what will happen in the second half of the year is quite complex. We have no reason to be pessimistic, but being optimistic at this stage is also quite daring."

The luxury goods industry as a whole is facing headwinds

As of Tuesday's close, LVMH's market cap was about 333 billion euros, seen as the leader of the luxury goods industry. In the past year, as the luxury goods industry has slowed down, LVMH has been in the middle of the growth levels.

In contrast, European luxury goods companies such as Kering Group and Burberry are lagging behind, while high-end brands such as Hermes are leading the way as they benefit from wealthier customer groups.

Luca Solca, an analyst at Bernstein, said:"Against the backdrop of slowing demand for luxury goods, LVMH has slowed down its growth rate."

The main reasons for the decline in LVMH's operating profit are foreign exchange gains/losses and investments in retail.

In the past year, LVMH's stock price has fallen about 20% to 692 euros per share. In fact, the stock prices of most companies in the luxury goods industry have been declining against the backdrop of slowing demand for luxury goods.

However, looking forward to the future, LVMH is still expected to leverage the momentum of the opening of the Olympics this Friday to enhance its brand image.

LVMH has sponsored the Paris Olympics, and the company's CEO, Bernard Arnault, wrote in the financial report, "In our year of collaboration with the Paris 2024 Olympic and Paralympic Games, we are honored to share our creativity, exquisite craftsmanship, and steadfast commitment to society, making this great event a success and providing an opportunity for France to shine on the world stage."

Editor/ping