Louis Vuitton, Dior sales jump, defying war and China gloom

PHOTOS FROM UNSPLASH

LVMH posted strong revenue growth as the world’s largest seller of luxury goods defied disruptions from the war in Ukraine and the resurgence of coronavirus disease 2019 (COVID-19) in China, a potential harbinger for the rest of the industry.

First-quarter sales advanced 23% on an organic basis to € 18 billion ($ 19.5 billion), led by LVMH’s biggest unit, fashion and leather goods, the Paris-based company said late Tuesday last week. Analysts had expected a gain of 17%.

Led by billionaire founder Bernard Arnault, LVMH is the first European luxury-goods maker to publish revenue for the period. The owner of Louis Vuitton and Dior was buoyed by resilient demand in the US and Europe.

“The stellar 1Q highlights their geographical and business reach and lack of reliance on any one group, considering the disruption to current trading in China,” wrote Swetha Ramachandran, who manages GAM’s Luxury Brand Equity Fund, in response to a Bloomberg query.

The stock rose as much as 1.8% in early Paris trading, trimming its decline this year to 12%. LVMH has a market value of almost € 322 billion ($ 348 billion).

LVMH’s organic revenue in the US and Europe grew at 26% and 45%, respectively, in the quarter. That compares with an 8% gain for Asia, excluding Japan. The US, meanwhile, generated about a quarter of the company’s revenue.

Revenue at LVMH’s fashion and leather goods unit soared 30%, beating analysts’ forecast for a gain of 23%.

CHINA EFFECT
Still, the company said it’s currently seeing a negative impact on demand for luxury products due to lockdowns in China. On a call last Tuesday, Chief Financial Officer Jean-Jacques Guiony told analysts he’s confident about medium to long-term demand in China once the situation gets back to normal.

“Investors are digesting the very strong 1Q performance, but also the uncertain outlook for China,” Bernstein analyst Luca Solca said by email.

The wine and spirits unit was the only division not to grow at double digits due to supply constraints, notably for its Hennessy cognac, where volume decreased 18% during the period. LVMH partially offset the drop in volume with price increases, said Chris Hollis, who oversees investor relations, during the call. Hollis said the first quarter tends to be volatile and a less important period following the holiday shopping season.

The luxury industry has been relying on price increases to offset inflation, and Mr. Guiony said most LVMH brands have increased prices in “a meaningful way” during the period.

LVMH closed its stores in Russia on March 6 following the invasion of Ukraine, a conflict that could dent consumers’ “feel-good factor” when it comes to luxury purchases, according to Telsey Advisory Group. Russian nationals are estimated to account for less than 1.5% of LVMH’s sales, according to Morgan Stanley. – Bloomberg

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