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LVMH's wine and spirits business drags down overall performance of luxury group

Wine and spirits proved to be particularly trying for the luxury giant as destocking by distributors in China continues to prove to be a major challenge. Revenue for the wine and spirits business group declined by a reported 7%, dropping from €1.795 billion for the first half of 2013 to €1.677 billion for the first half of 2014.

Profits for the wine and spirits business group also declined by 15% year-on-year.  The first half of 2103 reported €549 million and for the first half of 2014 profits dipped to €461 million.

The destocking by Chinese distributors continues to be a major headwind for LVMH. According to the half yearly report released by LVMH the poor performance "essentially reflects the performance of Cognac in China, linked to destocking by distributors, which continued in the second quarter."

Since China passed anti-corruption laws and cracked down on luxury gift giving, premium and ultra-premium brands have struggled to stop declines in Asia.  Ultra-premium Cognac brands have been hit particularly hard.

Rémy Cointreau released its Q1 2014/2015 results last week and reported organic sales had slipped another 5.7% during Q1 ending on June 30, 2014 with the decline being driven by Remy Martin Cognac revenue falling another 15% for the quarter.

LVMH is focusing on emerging markets as part of its strategy to help improve performance.  The US market will be a particular focus for the group as the European market is being held back by ongoing uncertainty, said its report. 

The growth in Champagne sales, however, has been a bright spot for LVMH.  "The Champagne business, with its fast growing prestige vintages, experienced a good start to the year," it said.

Overall, LVMH's half yearly revenue grew by 3%, but profits dipped 5% .

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