LVMH H1 2025 profit down 22%; tariffs and FX shock test resilience
Bottom Line Impact
Without decisive pricing, hedging, and channel mix actions, LVMH faces 100 to 200 bps margin compression in FY 2025 and potential share leakage to more insulated peers, though swift reallocation to Mainland China and disciplined icon led assortments can stabilize revenue and protect brand equity.
Key Facts
4- H1 2025 net profit declined 22% year over year; sales fell 4% to just under EUR 40b, implying roughly EUR 1.6b to EUR 1.7b revenue shortfall versus prior year run rate
- Fashion and Leather Goods revenue fell 8% to EUR 19b; Wine and Spirits declined 8% to EUR 2.6b, signaling broad-based softness across key profit engines
- United States accounts for about 25% of group revenue; a hypothetical 5% to 10% tariff on EU luxury imports would equate to roughly EUR 1.0b to EUR 2.0b annual revenue cost exposure before pass through, implying EUR 0.5b to EUR 1.0b EBIT risk if only half is passed on
- Management cited improved Mainland China demand but a sharp drop in Chinese tourist purchases in Japan due to currency effects, pressuring travel retail and local store productivity
Time Horizons
Executive Summary
LVMH reported a 22% net profit decline on a 4% revenue contraction to just under EUR 40b in H1 2025, underscoring negative operating leverage amid tariff threats and currency dislocations. Immediate actions on pricing, FX hedging, channel mix, and China domestic clienteling are critical to protect margins and stabilize demand through year end.
Actionable Insights
Immediate Actions (Next 30-90 days)
Activate a tariff playbook with three tiers of pass through (50, 75, 100 percent) and pre-approved price files for US effective within 10 days of policy announcement
Rationale: A 5 to 10 percent tariff could compress EBIT by EUR 0.5b to EUR 1.0b if unmitigated; rapid, coordinated pricing avoids margin erosion and inconsistent market responses
Role affected:CEO
Urgency level:immediate
Increase USD and JPY hedge coverage by 20 to 30 percent of next 12 months net exposure and set markdown guardrails to cap Fashion discounting at under 10 percent of sales
Rationale: Currency swings are driving demand distortions and margin volatility; enhanced hedging and disciplined markdowns can preserve 100 to 150 bps of operating margin in H2
Role affected:CFO
Urgency level:immediate
Short-term Actions (6-12 months)
Redirect 15 to 20 percent of H2 media and clienteling budget from Japan travel retail to Mainland China top 20 cities with emphasis on private appointments and WeChat CRM
Rationale: Management notes improved Mainland China demand while Japan tourist spending is down; reallocating spend can lift China conversion and offset tourist softness
Role affected:CMO
Urgency level:short-term
Rebalance inventory by pulling 10 to 15 percent of high-demand SKUs from Japan to Mainland China and US flagships; prioritize carryover icons over seasonal breadth
Rationale: Inventory in slower channels is tying up cash and risking markdowns; mix optimization will improve sell-through and preserve brand equity
Role affected:COO
Urgency level:short-term
Risks & Opportunities
Primary Risks
- US tariff implementation raising landed costs by 5 to 10 percent and compressing group EBIT by up to EUR 1.0b if pass through lags
- Prolonged weakness in Chinese tourist spending in Japan depressing travel retail and widening global price gaps
- Further category-specific pressure on cognac from China trade frictions, weighing on Wine and Spirits mix
Primary Opportunities
- Strengthening Mainland China domestic demand enabling higher DTC penetration and CRM-driven repeat purchases
- Price harmonization in Japan and the US to reduce arbitrage while lifting average selling prices with limited volume loss
- Mix shift to icons and carryover products to stabilize margins in Fashion amid slower newness sell-through