The news: LVMH unexpectedly returned to growth in Q3 following two quarters of contraction.

• Organic sales increased 1% YoY as demand improved across all segments.
• Sales trends strengthened in all regions save Europe, with notable recovery in mainland China as well as the US.

Why it matters: LVMH’s burst of momentum is a positive sign for the luxury industry, which has otherwise had a difficult year as consumers worldwide rethink spending amid considerable uncertainty. While demand is still soft compared with prior years—particularly for fashion and leather goods, which make up the core of LVMH’s business—interest in products like champagne, perfume, and jewelry is (for now) helping to make up the difference.

In particular, LVMH’s recovery in mainland China could mark a turning point for the country’s struggling luxury sector.

• Sales in the country “turned positive” in Q3, CFO Cecile Cabanis said during the company’s earnings call, driven mainly by an uptick in local demand.
• However, Chinese consumers’ interest in luxury remains highly variable. Shoppers in tier-1 cities are less inclined to spend on designer goods than consumers in tier-2 cities, who are generally more optimistic about the economy and their financial situations.
• That shift benefits LVMH, which has a larger network of stores in lower-tier cities as well as considerable brand recognition.

Our take: To keep the momentum going, LVMH will have to deliver freshness and creativity.

• Consumers respond quickly to new initiatives, innovation, and “retail disruption,” Cabanis said—areas where the company has lagged in the past year.
• With new creative directors at five of its brands, LVMH is betting that fresh artistic inspiration can revive interest in its offerings and persuade shoppers worldwide to open their wallets.