LVMH’s fashion and leather goods unit — the powerhouse behind Louis Vuitton and Dior — is officially growing again. But the long-awaited turn comes with an asterisk: the Iran war and wider Middle East conflict are already showing up in the numbers, and they’re acting like a drag on the very business that usually pulls the entire luxury sector forward.
LVMH fashion and leather goods: growth, but just barely
The headline number tells the story. Organic sales at LVMH’s fashion and leather goods division rose 1% last quarter, the group said on Monday. That’s the first quarterly increase in two years for its biggest and most profitable unit — a crucial milestone after a bruising luxury slowdown.
The problem is how that growth looks in context. Analysts were expecting closer to 1.5–1.7% organic growth, and the division fell short. In a business that has historically churned out double-digit gains, a 1% uptick barely clears the bar. It’s “up” on paper, but not exactly a comeback tour.
LVMH directly linked some of that weakness to geopolitics. The group said the Iran war shaved about one percentage point off growth in fashion and leather goods, effectively halving what the unit might have posted in a more stable environment.
How the Iran war is hitting luxury demand
Luxury spending thrives on mobility and confidence. Both are under pressure when conflict spreads across a region that is critical for tourism flows and high-spending visitors.
LVMH flagged two related effects:
- Tourism in Europe is softer: The conflict in the Middle East has dented travel to major European shopping hubs, limiting the stream of big-ticket luxury buyers.
- Wealthy shoppers in the Gulf are pulling back: The group pointed to weaker spending in the Gulf, a region that normally punches far above its weight for high-end fashion and accessories.
When fewer Middle Eastern shoppers are flying into Paris, Milan, or London — and those staying closer to home feel more cautious — the impact shows up quickly at the top of brands like Louis Vuitton and Dior. In Europe overall, LVMH said sales were flat in the quarter, a stabilization after declines earlier in the year but still far from the boom days.
US shoppers are doing the heavy lifting
What’s keeping the broader LVMH machine from stalling is the United States. Group-wide, sales rose 3% in the second quarter on an organic basis to €19.5 billion, roughly in line with expectations, with the U.S. doing most of the work.
Sales in the U.S. climbed 6% after a 3% rise in the first quarter, and LVMH described demand as being fuelled by newly created wealth — particularly from the AI and technology boom and record stock markets. In other words, fresh millionaires and billionaires are showing up, and they’re still buying.
But that strength is uneven across categories. The real outperformance is coming from what the industry calls “hard luxury” — jewellery and watches — rather than the soft luxury of bags, ready-to-wear and small leather goods that usually define the feel of a fashion cycle.
Hard luxury is racing ahead of fashion
LVMH’s Watches & Jewellery division was the standout this quarter. Sales there jumped 11%, an acceleration from 7% growth in the previous three months. Within that, Tiffany and Bulgari delivered gains in the mid-teens as wealthy shoppers continued to favor jewellery over handbags and apparel.
That contrast matters. Fashion and leather goods is still LVMH’s profit engine, but right now it’s the slowest-moving part of the car. While jewellery taps into a mix of investment appeal, gifting and personal treats, fashion tends to be more sensitive to mood and visibility: people buy statement accessories and logo-heavy bags when they feel flush and unbothered by macro headlines.
Instead, the mood at the top end of the market looks cautious, especially among shoppers directly or indirectly exposed to the Middle East conflict.
Dior’s new era, same tough backdrop
Inside fashion and leather goods, there are still bright spots. LVMH said Dior is gaining momentum under new creative director Jonathan Anderson, who took over the house’s creative reins amid the broader slowdown. It’s early days, but any sign of outperformance at a key label matters when the overall unit is barely inching forward.
The trouble is that even a refreshed Dior isn’t immune to macro reality. When travel patterns are disrupted, and shoppers in the Gulf and Middle East are rethinking big discretionary purchases, it’s hard for even a hot creative streak to fully show up in the numbers.
The timing also works against LVMH. This quarter’s modest rebound in fashion and leather goods lands after a two-year downturn across the luxury sector. Investors were already hoping the industry had found the bottom; a 1% growth print doesn’t quite qualify as a convincing rebound, especially when management is pointing to conflict as a measurable drag.
Luxury’s two-speed recovery
Step back, and the quarter underscores a wider split in global luxury:
- North America, especially the U.S., is in recovery mode, powered by stock market gains, tech and AI-driven wealth, and a return of big-ticket discretionary spending.
- Europe and the Gulf are pressured by geopolitics and tourism shocks, with the Iran war casting a long shadow over travel and high-end retail.
For LVMH, that adds up to a patchy recovery rather than the broad-based upturn the market had been hoping for. Group-wide, first-half organic sales rose 2%, but reported revenue slipped 3% to €38.6 billion, hurt by currency moves. Profits from current operations fell 4% to €8.7 billion, with foreign exchange alone knocking about €700 million off earnings. The operating margin, however, held broadly steady at 22.5%, a reminder of just how profitable the business remains even in a tougher environment.
Investors aren’t giving much credit for that resilience. Shares in LVMH have fallen 28% since the start of the year, making it one of Europe’s worst-performing large caps, and the stock dipped again after the latest update.
What this means for Louis Vuitton, Dior and the wider sector
For LVMH’s flagship fashion brands, the message is clear: the growth engine still works, but it’s firing on fewer cylinders. The company has proved that there is latent demand for Louis Vuitton trunks, Dior bags and the rest of the leather-heavy lineup, but external shocks are keeping that demand from showing up fully in the quarterly scorecard.
The Iran war’s one-point hit to fashion and leather goods growth might not sound dramatic on paper, but in a low-growth quarter it effectively defines the story. Without that drag, LVMH’s core fashion unit would be posting something closer to a normal — if still subdued — recovery, rather than a grudging climb out of the red.
For the wider luxury sector, this quarter from LVMH, the industry’s bellwether, signals three things:
- Geopolitics is now a line item: Conflict in key tourist and wealth regions is no longer an abstract risk; it’s quantifiably hitting sales.
- Hard luxury is where the momentum is: Jewellery and watches are outpacing handbags and ready-to-wear, and competitors will lean into that trend.
- The U.S. is the growth cushion: Any brand without a strong U.S. footprint will feel these shocks more acutely.
What This Means
LVMH’s latest quarter is a reminder that even the biggest name in luxury isn’t insulated from war and instability. The fashion and leather goods unit has finally stopped shrinking, but its 1% organic growth shows how fragile that recovery is when a conflict in the Middle East can wipe out roughly half the momentum.
For Louis Vuitton, Dior and their peers, the next phase is about navigating a world where macro shocks, shifting tourist flows and regional conflicts can push a quarter from solid to so-so. If the Iran war drags on or escalates, expect more pressure on European and Gulf demand — and more dependence on U.S. shoppers and hard luxury to keep the sector’s slow comeback alive.
Photo: 663highland / CC BY 2.5 via Wikimedia Commons
