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China sales stable as European luxury brands tally first-quarter impact of Iran war

While LVMH, Hermes and Prada recorded increased sales in Chinese market, Kering reported a decline

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LVMH CEO Bernard Arnault addresses its annual shareholders meeting in Paris on April 23. Photo: Reuters
Xiaofei Xuin Paris

Europe’s luxury sector is heading into the summer with divergent regional prospects: Middle East headwinds are deepening yet underlying momentum is quietly improving, with the American market holding firm and China stabilising.

The war in the Middle East was on everybody’s mind as major European luxury product groups wrapped up their first-quarter earnings season recently, wary that the conflict could derail what was expected to be a year of recovery.

Geneva-based Richemont, which on Friday became the last major group to report its first-quarter earnings, embodied that tension. The jewellery giant posted a 13 per cent rise in quarterly sales, with the Americas up 18 per cent and the Asia-Pacific region, excluding Japan, up 14 per cent, yet company chairman Johann Rupert still cautioned investors about persisting uncertainties, “not least in relation to developments in the Middle East”.

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LVMH CEO Bernard Arnault offered one of the earnings season’s starkest assessments, warning shareholders at its annual general meeting on April 23 that the crisis in the Middle East risked becoming a “world catastrophe”, though he stopped short of despair, expressing hope for a quick resolution that would allow businesses to “resume their normal course”.

The French luxury giant reported organic growth – including a negative impact of 7 per cent from currency fluctuations – of 1 per cent during the first quarter, and said it would have been around double that if not for the war. LVMH said its core fashion and leather goods business saw a 2 per cent drop in organic growth during the quarter due to the crisis.

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Kering, another French-based luxury group, saw sales of its main brand, Gucci, sink by 9 per cent. In its first-quarter results announcement it said that the war’s broader impact “relates to potential impacts on global tourism trends and the macroeconomic backdrop”. It said 8 per cent growth in North America was not enough to “offset declining trends in Asia-Pacific and western Europe”.

The impact of the war also touched Hermes, usually considered one of the sector’s most resilient players due to the popularity of its handbags. Weaker-than-anticipated tourist flows in Europe saw Hermes miss first-quarter expectations – something that HSBC analysts called “a rare occurrence historically” – as the group reported a 3 per cent drop in sales in France, its home base.
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