LVMH steams ahead as luxury demand remains strong
World’s biggest luxury group says there are no signs a feared crackdown in China is affecting sales
LVMH has seen no sign of a slowdown in the luxury boom in China, its second-biggest market, since the authorities there hinted at a crackdown on the mega-rich and called for a focus on “common prosperity” in August.
Investors have worried that new curbs on conspicuous consumption in China would cast a pall over luxury goods companies, as they did during an anti-corruption campaign that began in 2012. This has sent luxury stocks down since the summer, with LVMH 8.5 per cent lower, Gucci-owner Kering down 15 per cent and Hermès with an 8 per cent fall.
But LVMH’s chief financial officer Jean Jacques Guiony said LVMH, the world’s biggest luxury group, had not seen “any change” to its business in China since then.
“It’s difficult to analyse the potential impact but there is nothing alarming so far,” he said. “The bulk of our customers in China are not billionaires but the affluent and upper middle classes,” he added.
LVMH also reported forecast-beating third-quarter sales on Tuesday powered again by its all-important Louis Vuitton brand, which brings in the majority of group operating profit, and continued strong demand in the US and China.
Quarterly revenue was €15.5bn compared to analysts’ expectations of €15bn. The key metric of organic sales growth, which strips out the effect of currency fluctuations and acquisitions, came in at 11 per cent in the quarter, compared to the same period in 2019 before the pandemic.
LVMH’s biggest division of fashion and leather goods, which brings in almost three-quarters of annual operating profit and includes brands such as Louis Vuitton and Christian Dior, expanded 38 per cent on an organic basis compared to the same period in 2019. It brought in €7.4bn in sales compared with €5.4bn in the same quarter in 2019.
Luca Solca, analyst at Bernstein, said the fashion and leather goods division had beat consensus expectations, which will “come as a relief to investors”.
“Our growth rate remains strong and we have almost completely erased the impact of the health crisis in under a year,” Guiony said. “If you had told me in April 2020 that we would end up here, I would have been very happy.”
That LVMH has recovered so quickly from the pandemic shows how growth at its biggest brands has compensated for steep declines elsewhere, such as its travel retail business DFS, which has been badly hurt by the continued strict curbs on travel in Asia.
The group, which is headed by billionaire Bernard Arnault, has taken market share from smaller luxury groups in everything from handbags to apparel, opening up a bigger gap between the sector’s leaders and the rest.
Christopher Rossbach, the chief investment officer of asset management firm J Stern & Co which owns LVMH shares, said he believed investor concerns about a slowdown in China because of the political situation were “misplaced”.
LVMH’s broad range of products had options for “all budgets”, and in China the group sells mostly to affluent and upper-middle class people, not necessarily the super-rich.
“We believe it is positioned for share gain and will emerge as a major beneficiary of the ‘common prosperity’ policy,” he said.
LVMH does not provide financial guidance, nor do its rivals. Kering and Hermès will report third-quarter sales later in October.