West Asia War Has a Luxury Problem: LVMH Flags Slumping Gulf Sales, Recovery at Risk

LVMH, the French luxury conglomerate behind some of the brands including Louis Vuitton, Dior, Bulgari and Hennessy, has warned that the ongoing West Asia conflict shaved at least one percentage point off its total group sales in the first quarter of the year, Reuters reported.

The company cited a sharp drop in consumer spending across the Gulf region and a decline in tourist footfall across Europe as the primary culprits behind the shortfall.

The results, which made LVMH the first major luxury group to report first-quarter figures, are expected to amplify investor anxieties about the war's broader impact on the global luxury industry, a sector valued at around $400 billion and only beginning to show signs of recovery.

LVMH's US-listed shares fell 3.75% following the announcement, while shares in Kering, the parent company of Gucci, declined by 1.5% in sympathy.

Growth Falls Short of Expectations

Group-wide quarterly sales rose just 1% on a currency-adjusted basis, slightly below the 1.5% increase that analysts had forecast, according to data from Visible Alpha.

LVMH's finance chief Cecile Cabanis acknowledged that conditions in West Asia have shown little meaningful improvement since the conflict triggered heavy disruption to major shopping hubs earlier in the year.

"What we see today is still that demand is very much down," Cabanis said as quoted by Reuters. She noted that mall traffic in the region, which accounts for around 6% of LVMH's total turnover, had initially fallen by between 30% and 70%, with an average decline of roughly 50%.

Reuters had separately reported that mall sales in Dubai dropped by as much as 50% following US-Israeli strikes on Iran at the end of February, which marked the beginning of the latest escalation in the region.

Cabanis also underscored the financial severity of lost sales in West Asia, pointing out that the region is among LVMH's more profitable markets. "If you lose one euro in sales, you probably lose a bit more in your margin," she warned, highlighting why even a modest revenue decline in the Gulf can have an outsized effect on profitability.

Europe Feels the Chill Too

The conflict also cast a shadow over LVMH's European performance, with sales in the region falling 3%. The company attributed the decline to a combination of the strong euro making luxury goods more expensive for foreign visitors, and a reduction in tourist numbers linked to the broader instability in the Middle East. Fewer Gulf and international tourists travelling to European fashion capitals such as Paris and Milan translated directly into lower footfall at the group's flagship stores.

The results dealt a particular blow to LVMH's core fashion and leather goods division, accounting for roughly 80% of operating profits in the prior year. Sales in this segment fell 2% on an organic basis, worse than analyst estimates of a 1% decline, and marked the seventh consecutive quarter of falling revenues for the division, the report added. The individual performances of Louis Vuitton and Dior were broadly in line with the division's overall trajectory.

Not all regions disappointed. The United States emerged as the clearest bright spot in an otherwise subdued set of results, recording 3% organic sales growth in the quarter. The war, LVMH noted, has so far had no discernible effect on the spending mood in North America.

However, consumer sentiment in the United States fell to a record low in early April. Americans anticipate a significant surge in inflation over the next twelve months, a warning sign that the resilience of US luxury demand may yet be tested in the quarters ahead, Reuters added.