Backstage at Louis Vuitton Men's SS 2020

PARIS LVMH Moët Hennessy Louis Vuitton said sales rose 17 percent in the third quarter, fueled by rapid growth in fashion and leather goods, despite the sharp drop in tourism in Hong Kong as a consequence of nearly four months of violent anti-government protests.

Sales totaled 13.32 billion euros in the three months ended Sept. 30, up 11 percent on an organic basis, the company said. Analysts had banked on a 9 percent rise in like-for-like revenues.

Tourist arrivals in Hong Kong fell nearly 40 percent in August versus the same period last year, following a 5 percent drop in July, representing the biggest monthly decline since the SARS outbreak in 2003. Retail sales plummeted by a record 23 percent in August, according to the most recent government data.

LVMH’s performance was driven by its key fashion and leather goods division, which includes Louis Vuitton, Dior and Fendi. It saw revenues rise by 19 percent on a like-for-like basis to 5.45 billion euros during the third quarter, again sharply exceeding consensus estimates.

The division had posted organic growth of 14 percent in the same period a year ago, and recorded a 20 percent rise in like-for-like sales in the second quarter.

Wines and spirits were up 8 percent, while perfumes and cosmetics recorded organic growth of 7 percent. Selective retailing, which includes duty-free operator DFS and beauty retailer Sephora grew 4 percent, and watches and jewelry posted a 5 percent increase.

DFS continued to grow over the first nine months of the year despite the slowdown in Hong Kong,” LVMH said in a statement issued after the market close.

The industry bellwether’s quarterly sales figures come before luxury rivals Kering and Hermès International, both due to report on Oct. 24. Compagnie Financière Richemont is scheduled to publish interim results on Nov. 8.

The unrest in Hong Kong could have a negative impact of between 0.6 and 1.2 percent on global luxury growth this year, if the fourth quarter is as badly hit as August and September, Bernstein said in a recent research report.

It estimated Hong Kong accounts for 5 to 10 percent of global luxury sales — in the higher end of the range for hard luxury, and in the lower end for soft luxury. Bernstein said it assumed the sales decline in the third quarter was 50 percent in Hong Kong, and that there would be no improvement in the fourth quarter.

Analysts estimate that Hong Kong accounts for around 6 percent of LVMH’s overall sales, and some of those purchases will have been transferred to other parts of Asia.

“We expect that more than half of the sales decline in Hong Kong to be offset by repatriation of purchases to [Mainland China] and dynamic trading in other Asian markets like Korea and Japan,” Rogerio Fujimori, analyst at RBC Capital Markets, said in a recent report.

He sees no end in sight to the political turmoil in Hong Kong, concluding that tourism from Mainland China should remain very weak for the next six to nine months. “We believe that most brands could suffer sales declines in Hong Kong to the tune of minus 30 percent to minus 60 percent in Q3,” he wrote.

Edouard Aubin, analyst at Morgan Stanley, said DFS is particularly exposed, with an estimated 45 percent of its sales coming from Hong Kong and Macao. Bulgari also risks taking a hit, with Aubin estimating that Chinese nationals account for 55 percent of the Italian jeweler’s sales.

LVMH is due to provide further details Thursday in a conference call with chief financial officer Jean-Jacques Guiony. The luxury group’s share price is up around 41 percent so far this year. LVMH chairman and chief executive officer Bernard Arnault is listed as the world’s third richest man in the Bloomberg Billionaires Index, with a net worth of $90.8 billion.

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