The news: LVMH’s sales fell more than expected in Q2 in yet another sign of trouble for the luxury industry.

• On a reported basis, Q2 sales declined 4% YoY to €19.5 billion ($21.1 billion). That was slightly below FactSet’s consensus estimate of €19.6 billion ($21.2 billion).
• Organic sales for the company’s core fashion and leather goods division sank 9% YoY, worse than the 7.8% decline analysts expected.

The big picture: Luxury is losing its luster with shoppers, who are less inclined to splash out on expensive purchases as geopolitical and macroeconomic uncertainty dampen sentiment and spending power. Unfavorable exchange rates are another headwind, causing Chinese visitors to Japan and US tourists in Europe to think twice about buying designer handbags while on vacation.

• A stronger Japanese yen contributed to a 28% drop in LVMH’s Japan revenues, which largely drove the decline in the company’s fashion and leather goods business.
• At the same time, more spending in Europe and the US came from local buyers—a possible indication that the weakening dollar is causing Americans to pare back their European shopping sprees.

What’s happening in the US? For now, US demand is “stable,” LVMH executives said, although fashion and leather goods sales decelerated throughout the quarter. The company has so far not felt the hit from tariffs, having had enough stock on hand to avoid paying significant duties.

• But that could change soon. While the EU and US are reportedly closing in on a deal that would result in 15% tariffs on most European imports, that would be higher than the 10% rate LVMH and its peers currently face.
• Those costs would partly trickle down to consumers in the form of “moderate” price hikes, CFO Cécile Cabanis said—which would do little to dispel concerns that LVMH is over-reliant on price hikes to boost growth.
• CEO Bernard Arnault is also planning to open another Louis Vuitton factory in Texas, which could reduce its tariff exposure while currying favor with the Trump administration.

Our take: 2025 is shaping up to be another difficult year for the luxury industry—and not only because of tariffs. While the duties are certainly hitting consumer sentiment and buying power, limited innovation and a perceived lack of value are diminishing luxury’s appeal, even among shoppers who can afford it.

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