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Luxury Group LVMH Beats Expectations Despite China Drag On Sales

Luxury goods group LVMH is optimistic about high-end spending in the United States but it struck a cautious note on the pace of recovery in the key Chinese market.

LVMH reported better than expected second-quarter sales, with robust US growth and a recovery in Europe offsetting declining revenue in Asia, where lockdowns in China disrupted business.

The French company, which owns dozens of high-end labels ranging from Tiffany to Moët & Chandon, has tapped strong post-pandemic demand for its designer labels as socialising resumes and shoppers spend savings accumulated during the pandemic, brushing off concerns about turbulent stock markets and rising prices.

LVMH's sales rose 19% year on year to €18.73 billion ($18.95 billion) in the three months to 30 June, beating analyst expectations for €17.13 billion in a Visible Alpha consensus cited by UBS.

But revenues fell by a "heavy double-digit" in China, the group's finance chief Jean Jacques Guiony told analysts as a result of COVID-19 restrictions imposed from mid-March.

Strengthening Dollar

He flagged some improvement in the Chinese market toward the end of the quarter, but said it was "nothing very significant", adding that store traffic in the country was still "well below" last year's levels.

Guiony said some luxury spending shifted to Europe as travelling US tourists took advantage of the strengthening dollar and was more upbeat than some rivals about a possible US recession affecting demand for high-end goods.

"We are very optimistic with regards to the US and a little bit 'wait-and-see' with regards to China," Guiony said, adding it was too early to say how strongly the Chinese market would rebound.

The group has seen no pushback from consumers after most labels increased prices by between 3% and 8%, Guiony said, adding he did not expect the group to make big moves on the pricing front in the second half of the year.

'Here To Stay'

Operating margins in the fashion and leather goods division, which is led by Louis Vuitton and Dior, improved further in the quarter to reach 41.4%. Guiony said that kind of level, one of the highest in the industry, was 'here to stay.'

Sales in the wine and spirits division bounced back strongly from logistical and supply constraints earlier in the year, growing 30%, while selective retailing, which includes cosmetics brand Sephora, rose 20%.

The company's strong second quarter sets a benchmark for its rivals. Gucci owner Kering publishes first-half results on 27 July, with Hermes reporting on 29 July.

Read More: Moët Hennessy Sees Challenges In Getting Suppliers To Adapt To New Sustainability Practices

News by Reuters edited by Donna Ahern, Checkout. For more Drinks stories click here. Click subscribe to sign up for the Checkout print edition.

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