LVMH reported a 5% year-on-year revenue decline for the first half of 2025, with operating profit falling faster than topline erosion. The Paris-based conglomerate disclosed the results Tuesday morning, confirming that Middle Eastern demand—previously a double-digit growth corridor—had contracted sharply ahead of and during the U.S.-Iran escalation that began in March. Management attributed the shortfall to "geopolitical disruption," but organic growth had already been negative in January and February, before the conflict intensified.
The earnings miss places LVMH behind Richemont and Hermès in relative performance for the quarter. Richemont posted flat organic growth for the same period, while Hermès reported 2.1% gains. LVMH's Fashion & Leather Goods division—historically its margin anchor—saw revenue contract 7% on an organic basis, the steepest quarterly decline since the COVID reopening volatility of 2021. Watches & Jewelry fell 11%, though that division represents a smaller revenue base. Selective Retailing, which includes Sephora and DFS, declined 3%, with DFS travel retail in the Gulf states experiencing what the company called "abrupt cessation" of foot traffic in April.
The underperformance matters because LVMH has been the luxury sector's earnings bellwether since 2018, and its margin structure—typically 300-400 basis points above peers—allowed it to absorb localized shocks without systemic repricing. That cushion is narrowing. Operating margin for the half contracted to 24.1%, down from 26.8% a year prior, driven by fixed costs in retail footprint and elevated marketing spend that did not translate to volume. The company had opened 47 new stores in the Middle East between 2022 and 2024, leaning into what was then a 15-18% annual growth trajectory. Those locations are now under review, per the earnings call, though no closure timeline was provided.
Luxury equities spiked 4-6% intraday Wednesday on unconfirmed reports that the U.S. and Iran had entered preliminary de-escalation talks. LVMH briefly touched €702 per share before settling at €688, still 9% below its January high. The rally unwound by Thursday's open. The issue is not whether a peace framework emerges—it's that the demand destruction in the Gulf region predates the conflict and reflects slower wealth velocity among the region's ultra-high-net-worth cohort. Chinese tourist spending in Dubai, a proxy for cross-border luxury demand, was down 22% in Q1 before hostilities began, according to Dubai Airports data. LVMH's disclosure suggests the Iran situation accelerated a trend rather than caused it.
Allocators should track three near-term datapoints: June sell-through figures from LVMH's Paris and Milan flagships, which typically capture rerouted Middle Eastern clientele; July earnings from Kering, whose Gucci and Bottega Veneta brands share customer overlap with LVMH's Dior and Louis Vuitton; and Q3 guidance from Richemont, due in early November, which will clarify whether jewelry hardlines face the same demand compression as leather goods. LVMH's next reporting window is late July for H1 details, but preliminary Q3 revenue estimates will circulate by mid-September.
The company's watch division write-down, buried in a footnote, amounted to €340 million and involved inventory revaluation for Hublot and Zenith. That suggests channel destocking beyond the Middle East.
The takeaway
LVMH's margin compression and organic growth lag signal sector-wide repricing risk, not isolated execution failure.
lvmhluxury sectormiddle east demandorganic growthearnings missgeopolitical risk
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