LVMH has a bad first half in East Asia

LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods company, reported first-half earnings that trailed estimates as a sales-tax increase in Japan and political unrest in Hong Kong weighed on demand in Asia.

Profit from recurring operations fell 5 percent to 2.58 billion euros ($3.5 billion), Paris-based LVMH said Thursday after European markets closed. Analysts expected 2.76 billion euros, according to the median of 18 estimates compiled by Bloomberg. The shares fell as much as 5.9 percent in Paris, the most since October, leading luxury stocks lower.

The 3 percentage-point increase in Japan’s value-added tax added to the difficulties of softening demand for expensive liquor and watches. So-called organic sales slumped 11 percent in that country in the second quarter, Chief Financial Officer Jean-Jacques Guiony said on a conference call, after gaining 32 percent in the first three months before the tax increase.

“It looks as if LVMH is taking the full brunt of a subdued demand environment and an adverse foreign-exchange context,” Luca Solca, an analyst at Exane BNP Paribas, said by e-mail.

Asian demand weakened “quite significantly” in the second quarter, led by slower Chinese spending at home and abroad, Guiony said. Political unrest in Hong Kong caused business to slow markedly there, while March’s disappearance of a Malaysian Airlines passenger jet affected sales in Singapore and Thailand, he said.

“Throughout the region we’ve seen some weakness in fashion and leather,” Guiony said. Asia, excluding Korea, is “under pressure.”

LVMH shares were down 5.8 percent at 133.10 euros as of 9:15 a.m. in Paris, paring this year’s gain to 0.4 percent. Kering SA, which reports first-half earnings July 30, fell 2.7 percent in Paris, while Burberry Group Plc fell 1.8 percent in London.

LVMH’s “unusual miss sends a cold chill over luxury,” Melanie Flouquet, an analyst at JPMorgan Chase & Co., said in a note to clients. She has a neutral rating on the stock.

Sales in most divisions missed estimates. Revenue growth of 4 percent at the fashion and leather-goods unit trailed analysts’ projections by 3 percentage points.

The performance “is not very reassuring, neither for LVMH nor the sector,” Rahul Sharma, managing director of Neev Capital, said by phone. “I’m not particularly optimistic on Gucci,” the Italian handbag maker owned by Kering, he said.

Bloomberg