Due to the war in Ukraine and the resurgence of Coronavirus Disease 2019 (COVID-19) in China, LVMH as the world’s largest luxury retailer has seen strong revenue growth, a potential haven for the rest of the industry.
First-quarter sales rose 23% on an organic basis to € 18 billion ($ 19.5 billion), led by LVMH’s largest unit, fashion and leather products, the Paris-based company said last Tuesday. Analysts had expected a 17% gain.
Led by billionaire founder Bernard Arnold, LVMH became the first European luxury goods maker to release revenue for the period. The owners of Louis Vuitton and Dior were buoyed by the resilient demand of the United States and Europe.
In response to a Bloomberg query, Swetha Ramachandran, who manages GAM’s Luxury Brand Equity Fund, writes:
The stock rose 1.8% in early Paris, cutting its fall to 12% this year. The market value of LVMH is about € 322 billion ($ 348 billion).
In the United States and Europe, LVMH’s organic revenue grew 26% and 45% quarterly, respectively. This compares with an 8% gain for Asia excluding Japan. The United States, meanwhile, generates about a quarter of the company’s revenue.
Revenue at LVMH’s fashion and leather goods unit rose 30%, beating analysts’ 23% growth forecast.
Nevertheless, the company says it is currently seeing a negative impact on demand for luxury products in China due to the lockdown. In a call last Tuesday, Chief Financial Officer Jean-Jacques Guinea told analysts that he was confident of moderate to long-term demand in China once the situation returned to normal.
“Investors are digesting the very strong 1Q performance, but also the uncertain outlook for China,” Bernstein analyst Luka Solka said in an e-mail.
The Wine & Spirits unit is the only division that has not been able to grow to double digits due to supply constraints, especially for its Hennessy Cognac, where volume has declined by 18% over time. LVMH partially offset the volume decline with price increases, said Chris Hollis, who oversees investor relations during the call. Hollis says the first quarter tends to be volatile and a less important time after the holiday shopping season.
The luxury industry is relying on inflation to offset inflation, and Mr Guinea says most LVMH brands have raised prices “in a meaningful way” during this period.
According to Telsey Advisory Group, LVMH closed its stores in Russia on March 6 after the Ukrainian invasion, a conflict that could erode consumers’ “good-for-nothing factor” in luxury shopping. According to Morgan Stanley, Russian citizens are estimated to account for less than 1.5% of LVMH sales. – Bloomberg