LVMH, the world's largest luxury group, reported its weakest quarterly sales growth since the pandemic recovery began in early 2021, as softening demand in China and a decline in champagne sales weighed on the company's performance. The Paris-based conglomerate, which owns iconic brands such as Louis Vuitton, Christian Dior, and Tiffany & Co., saw like-for-like sales grow by just 3% in the first quarter of 2024, in line with analyst expectations but marking a significant slowdown from the 18% growth reported in the same period last year.

The company's fashion and leather goods division, which includes its two bellwethers, Christian Dior and Louis Vuitton, grew by a modest 2% on an organic basis to €10.5bn in the first quarter. This slowdown was particularly evident in Asia, excluding Japan, where sales declined by 6% as Chinese demand normalized following the post-lockdown euphoria of early 2023. However, global sales to Chinese clientele still grew by around 10%, outpacing other major markets such as the US and Europe, where growth has been weak since last year.

LVMH chief financial officer Jean-Jacques Guiony noted that the main change compared to the final quarter of 2023 was with Chinese customers, partly due to a tougher base of comparison and an overall normalization of growth in Asia's biggest market. Despite the challenges, Guiony expressed satisfaction with Chinese demand, stating that purchases of Louis Vuitton products by Chinese buyers globally grew by around 10%, with an increasing proportion of sales occurring outside mainland China as they resume traveling, particularly in Japan and, to some extent, in Europe.

In the US, LVMH has observed "continuous strength" from high-end clients but faces ongoing challenges with aspirational customers, whose budgets have been squeezed by rising interest rates and inflation. Guiony emphasized that it will take time for these customers to adapt to the higher prices implemented by the industry in recent years, expecting a gradual improvement over several quarters or even years.

The group's watches and jewelry division also experienced a year-on-year decline in sales, with US-focused jeweler Tiffany, which LVMH acquired for $16bn in 2020, suffering from its exposure to aspirational American customers. The wines and spirits division was the weakest performer, with like-for-like sales falling 12% in the first quarter, following declines at the end of last year as global demand for champagne fell. Hennessy cognac, another LVMH-owned brand, continued to face limited orders in its biggest market, the US, amid uncertainty among retailers about its outlook after a pandemic-driven boom.

LVMH's overall sales growth of 3% on an organic basis to €20.7bn was in line with consensus expectations, but a 4% negative currency effect, mostly from the yen and the renminbi, pulled the reported numbers into negative territory. The luxury industry as a whole is adjusting to slower demand after a period of stellar sales growth following the pandemic, with consultancy Bain expecting the market for personal luxury goods to grow just 1-4% in 2024, down from an estimated 8-10% in 2023.

As the first luxury goods maker to report quarterly earnings, LVMH's performance sets the tone for the sector, which is grappling with worries about demand in China and a prolonged global slowdown. Gucci-owner Kering recently issued a surprise warning that first-quarter sales would slump 10%, with sharp declines in Asia, casting further uncertainty on the industry's outlook.