Q1 sales: unimpressive, but more worrying for peers, and likely to outperform the sector
Update LVMH reported 3.6% sales growth for Q1 (Bloomberg cons. and SGe at 5-6%), with cc
growth at 3% (cons. and SGe at 4%). This is the lowest cc growth since Q1 15, while the FX boost
was its lowest since 2014 . Comments by segment: Wine and spirits: Sales grew 6% at cc,
rebounding as expected (SGe: 7%) after Q4’s weak 4% showing as the Chinese cognac retail
market stabilised leading restocking to continue, US sales remained strong, and champagne sales
were strong (note however that Q1 is the smallest quarter of the year). Fashion – leather goods:
Q1’s 0% cc growth was a negative surprise (cons. 2.5%), and we expect management comments
at today’s conference call. The main factors behind this result were likely slowing European (all
three months impacted by of Paris terrorist attacks, vs 1.5 months in Q4), Japanese (slower
Chinese tourist rise) and US (stock market volatility, presidential election year) markets, with no
APAC improvement. This showing likely points to flat/negative growth for Vuitton (generally slightly
below the segment) and still negative growth at transitioning M. Jacobs and D. Karan, and at L.
Piana, hit by lower sales to Russians. The release mentions the continued strong showings of
Fendi, Celine and Kenzo. Others: Perfume/cosmetics growth of 9% at cc marks further
acceleration in this segment, which is outperforming the luxury goods industry and currently
playing to LVMH’s strengths (luxury, fragrance and cosmetics). Watches and jewellery posted cc
growth of 7%, up from Q4’s 3%. This is marginally reassuring for the other listed players, as the
release points to outperformance vs the industry on the basis of Bulgari’s continued successful
new product range and Tag Heuer’s successful price repositioning (at last) and smartwatch
launch. Lastly, retailing cc growth unsurprisingly slowed to 4% (in line with SGe), as we believe
DFS’s unchanged high-single-digit drop (95% of sales from Japanese/Chinese tourists) was offset
by slower growth from Sephora compared with H2 15, albeit a still stellar >10% at cc, on SGe.
SG view We will review our estimates after the call (3:00pm CET; 33(0)1 70 77 09 44), but
note that Q1 is one of the two smallest quarters of the year. The FLG weakness is a negative
sign for whole sector’s upcoming Q1 reporting, while diversification into segments in which
peers are not (beverages, Sephora) or much less (beauty) active should again secure LVMH’s
outperformance (SGe: sector at 0–2%). The stock and the sector should trail the market
today, but we maintain our positive stance on LVMH vs the sector.
How we value the stock Our TP is the average of SOP/DCF (9.5% WACC, 4% long-term
growth). See our models on pages 3-5.