Comment on this storyCommentLVMH Moet Hennessy Louis Vuitton SE hasn’t been immune from lockdowns in China damaging luxury sales. But it is best positioned among bling retailers to navigate what may be a bumpy recovery in the region, as well as growing pressures from soaring inflation and gyrating stock markets in the US.LVMH’s organic sales — excluding currency movements and merger and acquisition activity — rose 19% in the second quarter, well ahead of the consensus of analysts’ expectations for a 13.5% gain.The company’s crucial fashion-and-leather-goods division increased organic sales by 19%. That’s a slowdown from the 30% climb in the first quarter of 2022 but is still commendable, particularly given the disruption in China and jolts to consumer confidence elsewhere from equity and crypto market declines and the war in Ukraine.Less wealthy Americans are reining in spending on discretionary items, prompting a second profit warning on Monday from Walmart Inc. in just over two months. But more affluent shoppers, including US tourists returning to Europe, are continuing to spend, with both sides of the Atlantic enjoying demand for champagne and Christian Dior accessories.While this may be protecting LVMH from the ravages of inflation, it is only a matter of time before there is some spillover from lower-income and middle-income consumers to the top-end.More marginal US luxury buyers may already be feeling the pinch. Burberry Group Plc said recently that demand for sneakers had weakened. While this may reflect consumer preferences shifting from casual clothes to more formal outfits, it could also be due to younger shoppers, once flush with stimulus checks and crypto gains, now retrenching.LVMH said that for the time being, it was enjoying a “good ride” in the US. There was no pushback from consumers after price increases in fashion and leather goods of 3%-7% in the first half.Nevertheless, sales at all the big luxury goods groups, including LVMH, will now compare with the second half of 2021, when Americans were spending on everything from handbags to high-end jewelry. It is also not clear how swiftly and strongly China will bounce back. After the country’s first lockdowns in 2020, shoppers unleashed a wave of revenge spending. In the wake of repeated outbreaks, they may be less inclined to splash out this time round.LVMH said that while the latest lockdowns had been “painful,” with second-quarter Chinese sales down by a percentage in the double-digits and store traffic well below the year earlier, it expected demand to rebound as restrictions eased.The company is also well placed to withstand a more difficult consumer backdrop elsewhere. Names such as Louis Vuitton and Dior remain top of mind for shoppers, while others such as Loewe are gaining ground. If the luxury shopper cuts back — say buying one handbag a year instead of two — they will likely focus on brands with the most cachet. They may even spend more on a single item.That’s good news for LVMH, Hermes International and privately held Chanel. It is less welcome for Kering SA’s Gucci, which is attempting to pivot from cutting-edge to classic, and groups trying to get more traction in categories such as handbags, including Burberry and Prada SpA.Don’t forget LVMH’s strong balance sheet — free cash flow was more than 4 billion euros ($4.1 billion) in the first half and borrowings have come down since the Tiffany acquisition at the start of last year — and its diversified portfolio — the wines and spirits division, the second most profitable unit, rose 30% in the second quarter. Both will help the luxury giant defend its business if top-end strength tumbles.Shares in LVMH have recovered over the past month, but they still trade on only a slim premium to the MSCI World Textiles, Apparel and Luxury Goods Index.That looks short-sighted given that this bling behemoth is well-dressed for tougher times. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.More stories like this are available on bloomberg.com/opinion
