$LVMH Earnings Digest| Middle-class consumption downgrades, luxury goods collapse!

Today, LV (Louis Vuitton) $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ released its third-quarter report, and its stock price plummeted nearly 8% at one point, wiping out all the gains made earlier this year:

No need to say much, LV's third-quarter performance has collapsed!

In specific terms, LV's overall third-quarter revenue was 19.96 billion euros, with only a 1% year-on-year increase, significantly below the analysts' expectations of 21.14 billion:

Looking at the business segments, the highest revenue came from leather goods at 9.75 billion, with a 0.7% year-on-year growth, significantly down from the 15.8% growth in the second quarter; Selected retail revenue reached 4.08 billion, with a surprising 17.6% year-on-year growth, making it the only business segment exceeding expectations; The jewelry business generated revenue of 2.52 billion, marking a 5.3% year-on-year decline, the first negative growth in over two years; Fragrance business had a revenue of 1.99 billion, with a 1.7% year-on-year growth, a significant drop from the 11.6% growth in the previous quarter; The liquor business had a revenue of 1.5 billion, experiencing a substantial 20.5% year-on-year decline:

The significant decline in the Wines & Spirits had already shown some signs in the previous quarter, and the third quarter only saw an intensified decline. This was primarily due to weakened demand in the post-pandemic era and channel destocking. Other businesses also deteriorated in the third quarter, mainly because of the global middle-class consumption downgrade.

From a regional perspective, the main drag on LV in the third quarter was the United States and China. In the United States, revenue was 5.3 billion euros, marking a 10.2% year-on-year decline. In Asia (excluding Japan), revenue was 5.75 billion, with a 9% year-on-year decline. In Japan, revenue was 1.39 billion, with a 0.8% year-on-year growth, a significant drop from the 13.2% growth in the previous quarter. The French and European markets remained stable:

Luxury consumption in both China and the United States is lackluster, with the former being significantly affected by inflation, and the latter being dragged down by slower economic growth and middle-class consumption downgrade. Entry-level luxury brands like LV are experiencing a significant impact.

After giving back the year-to-date gains, LV's price-to-earnings ratio has fallen to around 20 times, reaching historically low levels:

However, it is worth noting that LV's profitability significantly improved after the pandemic, with an adjusted net profit margin reaching 18.7% at one point, far above the historical average:

The increase in profitability was mainly driven by a decrease in expense ratios during the pandemic period, with the sales expense ratio decreasing by nearly 3 percentage points:

Looking ahead, as luxury goods sales face challenges, LV is highly likely to increase sales expenses, which may, in turn, weigh down on profitability.

Thus, using the price-to-sales ratio for valuation is more indicative. Currently, LV's valuation has fallen to historical highs. If it continues to decline under the negative impact of this financial report, the potential for future upward movement may increase, presenting an opportunity for luxury goods. After all, historically, the luxury goods industry has proven resilient to financial crises: