Luxury giants crave agreements in Europe and America, LVMH's Q2 core business revenue unexpectedly fell by 9%, CFO said a 15% tariff is a "good result" | Financial report insights

The second quarter reports of European luxury giants may raise red flags, as the total revenue and core business revenue for the world's largest luxury goods group LVMH fell more than Wall Street expected, reflecting the impact of economic uncertainty on the demand for high-end luxury goods in the first half of the year, with demand for such products in the major market of Asia continuing to weaken.

On Thursday, July 24, the France-based parent company LVMH announced that its operating revenue for the second quarter of this year was €19.5 billion, a year-on-year decrease of about 7%, far exceeding the less than 2% decline in the first quarter's revenue, and lower than analysts' expected revenue of €19.58 billion. Following a decline in revenue in the first quarter, LVMH has now reported revenue below Wall Street expectations for the second consecutive quarter.

In the second quarter, LVMH's organic revenue, derived from existing internal resources rather than external acquisitions, fell by 4%, while analysts had expected a decline of 4.45%, accelerating from a 3% decline in the first quarter.

In the first half of this year, LVMH recorded revenue of €39.81 billion, a year-on-year decrease of 4%, compared to a decline of only 1% in the same period last year. LVMH's net profit for the first half was €5.698 billion, a dramatic decrease of 22% year-on-year, also exceeding last year's decline of 14%. The recurring operating profit for the first half was €9 billion, a year-on-year decrease of 15%, slightly higher than analysts' expected €8.8 billion.

After the financial report was released, LVMH's American stock continued to decline, dropping at least 3% during midday trading and closing down 3.7%, falling from the closing high reached on July 10 after two consecutive days of gains.

LVMH CEO reportedly pushes for a trade agreement similar to the US-Japan agreement; CFO optimistic about a similar agreement

After the financial report was released on Thursday, LVMH's Chief Financial Officer (CFO) Cecile Cabanis discussed the trade negotiations between the European Union and the United States during a conference call.

She stated that if an agreement is reached, the United States would impose a 15% tariff on imported EU goods, which would be a "good outcome," as some of LVMH's brands still have pricing power, except for certain wines and spirits like Hennessy Cognac.

Cabanis said, "We seem to be close to reaching an agreement on tariffs, which should reduce the negative impact on macroeconomic conditions and consumer confidence."

The 15% tariff is exactly the level announced earlier this week by Trump regarding the US-Japan agreement. According to CCTV News, Trump announced via social media that the United States and Japan had reached a trade agreement: the tariff rate for Japan is 15%, along with Japan's $550 billion investment in the US. This effectively lowers the 25% tariff that Trump threatened to impose on Japan in a letter sent on July 7. On Wednesday, there were also media reports stating that the US and EU were close to reaching an agreement, with the US imposing a 15% tariff on the EU, although the White House later stated that the related reports were speculation.

On the same Thursday, media reported that LVMH's CEO Bernard Arnault had been lobbying in the capitals of EU member states in recent weeks, pushing for the EU to reach a trade agreement with the US similar to the US-Japan agreement He has met with German Chancellor Merz and Italian Prime Minister Meloni, and has also spoken with former U.S. President Trump. He has placed bets on both sides, planning to open a factory for LV in Texas, USA, to mitigate the impact of U.S. tariffs to some extent.

Organic Revenue of Fashion and Leather Goods Business Decreased by 9% in Q2, the Worst Performance Among All Businesses

By business segment, LVMH's largest revenue source—fashion and leather goods, including brands such as Louis Vuitton (LV), Dior, Celine, and Fendi—saw accelerated sales decline in Q2, with the drop exceeding Wall Street's expectations, making it the worst performer among major businesses in terms of revenue change. The second-largest business, selective retailing, which had the highest growth last year, returned to growth after a revenue decline in Q1.

The detailed data is as follows:

Fashion and Leather Goods: Revenue in the first half was €19.115 billion, with organic revenue down 7%. In Q2, revenue was €9.006 billion, with organic revenue down 9%, while analysts expected a decline of 7.82%. Organic revenue in Q1 was down 5%.

Selective Retailing: Revenue in the first half was €8.62 billion, with organic revenue up 2%. In Q2, revenue was €4.431 billion, with organic revenue up 4%, while it was down 1% in Q1.

Watches and Jewelry: Revenue in the first half was €5.09 billion, with organic revenue flat. In Q2, revenue was €2.608 billion, with organic revenue flat, same as in Q1.

Perfumes and Cosmetics: Revenue in the first half was €4.082 billion, with organic revenue flat. In Q2, revenue was €1.904 billion, with organic revenue up 1%, while it was down 1% in Q1.

Wines and Spirits: Revenue in the first half was €2.588 billion, with organic revenue down 7%. In Q2, revenue was €1.283 billion, with organic revenue down 4%, while it was down 9% in Q1.

Organic Revenue in Japan Decreased by 28% in Q2, Last Year's Yen Depreciation Stimulated Foreign Tourist Consumption

By market, other Asian regions outside Japan, including China, contributed 28% of LVMH's revenue in the first half, remaining the group's largest market. The U.S. market accounted for 25%, followed by other European regions outside France at 17%, with both France and Japan contributing 8%.

In Q2, the organic revenue decline in Asian regions outside Japan slowed compared to Q1, while organic revenue in Europe turned from decline to growth, and the U.S. halted its downward trend. However, Japan's organic revenue plummeted by 28%, a drop far exceeding that of Q1, leading to a double-digit decline in organic revenue for Japan in the first half.

LVMH commented that market demand in Europe and the U.S. remained robust in the first half, with strong local demand in Europe and stable local demand in the U.S. They believe the revenue decline in Japan is due to a base effect, as last year the depreciation of the yen stimulated foreign tourists from China and elsewhere to consume in Japan, resulting in strong luxury goods sales. In Q2 last year, Japan's organic sales surged by 57% LVMH also stated that the performance trend in Asia outside of Japan is similar to last year, although sales to local customers improved in the second quarter.

LVMH's CFO Cabanis indicated that benefiting from the recovery in champagne sales and the resilience of the fashion and leather goods business, LVMH's sales in the U.S. market in the second quarter were flat compared to the same period last year, showing improvement from the first quarter.

The detailed data is as follows:

Asia outside Japan: Organic revenue decreased by 9% in the first half of the year, with a 6% decline in the second quarter, while analysts expected a decline of 9.25%, and a decrease of 11% in the first quarter.

Japan: Organic revenue decreased by 15% in the first half of the year, with a 28% decline in the second quarter and a 1% decrease in the first quarter.

United States: Organic revenue decreased by 1% in the first half of the year, with zero growth in the second quarter, while analysts expected a decline of 3.17%, and a 3% decrease in the first quarter.

Europe: Organic revenue grew by 1% in the first half of the year, with a 2% decline in the second quarter and a 2% increase in the first quarter.