April 12, 2024

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LVMH shares jump as fears of sharp slowdown in luxury sector ease

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LVMH shares climbed 13 cent on Friday after the world’s biggest luxury group reported better than expected quarterly sales, raising hopes the sector can avoid a sharp slowdown this year.

The resilient demand from LVMH’s consumers in the final quarter of 2023 was enough to drag up the shares of rival luxury groups, with Gucci owner Kering up 7 per cent and Swiss watchmaker Richemont gaining 6 per cent.

Controlled by French billionaire Bernard Arnault, LVMH is regarded as a bellwether for the industry because of its size and the range of the 75 brands it owns, which include Louis Vuitton and Dior. The Paris-based group also owns jeweller Tiffany’s and the chain of Cheval Blanc hotels.

The group’s fourth-quarter sales climbed 10 per cent, topping analysts estimates. Sales at its fashion and leather goods business — its biggest division by revenues and profit — rose 9 per cent to €11.3bn, matching forecasts.

The performance of its fashion and leather goods division in particular is seen as a proxy for the luxury goods market globally. While the pace of sales growth has slowed from the records set during the pandemic, analysts were encouraged by LVMH’s upbeat tone.

“The confident tone [plus] resilient year-end demand and margins . . . supports our view that 2024 could be a smooth rather than difficult year of normalisation for LVMH,” said Thomas Chauvet, an analyst at Citigroup.

Friday’s bounce in the shares of luxury groups comes after a bruising six months for the sector as investors braced for a weakening in demand. Consultancy Bain has forecast that the industry’s growth will slow from an estimated 8 to 10 per cent last year to about 4 per cent in 2024.

LVMH chief financial officer Jean-Jacques Guiony told the Financial Times on Thursday that sales around Christmas rose to “a level of activity which was satisfactory at around 10 per cent growth, which the market might find disappointing because they had foolishly gotten used to 20 or 25 per growth every year”.

“That is not something we can do forever and it is not desirable. We are in a moment when these numbers have normalised to a relatively high and relatively favourable level, so we are quite happy,” he added.

The surge in LVMH shares drove were the group’s market capitalisation to over €380bn. Despite the gain, the stock remains 14 per cent below its record high in April 2023.

Friday’s advance for LVMH was enough to drive France’s benchmark index, the Cac 40, up 2.3 per cent.

“The 2023 performance illustrates the exceptional attractiveness of our brands and their capacity to create desire during a year that was tense on the economic and political spheres,” said Arnault. “While remaining vigilant in the current context, we look to the year 2024 with confidence.”

For the whole of 2023, LVMH grew its sales by 9 per cent to €86.2bn, in line with analysts’ estimates, but below the 23 per cent increase it achieved in 2022. Profits across the group increased 8 per cent to €15.2bn.  

Signs of resilience from LVMH came as Arnault, the company’s president and chief executive, consolidated the hold of the controlling family’s next generation with nominations for two of his sons to the board.

Both Alexandre, 31, and Frédéric, 29, had been put forward as candidates for the board, the company said. The nominations will be voted on at the company’s annual meeting in April. If successful, four out of five Arnault children will be on the board, with only 25-year-old Jean without a seat.

“When we enter LVMH, we are joining a family,” Arnault, 74, said. “But I have no intention of leaving in either the short or medium term.” 

The company will also propose increasing its annual dividend to €13 per share at the annual meeting, up from €12 the year before.

A standout in 2023 was the group’s beauty retailer Sephora, which delivered record sales and profits as shoppers’ appetite for skincare and cosmetics defied the dent made in their spending power by inflation.  

The French luxury group’s selective retail division, which houses Sephora as well as travel retail, increased sales by a quarter to €17.8bn in 2023 and raised its operating profit by 76 per cent, carried by strong performance in North America, Europe and the Middle East.

The business benefited from global beauty demand as well as the return to work after the pandemic, said Guiony, with shoppers flocking back to city-centre locations that had emptied during global lockdowns. 

Fashion and leather goods revenues rose 9 per cent to €42.2bn for the year, in line with consensus expectations compiled by Eikon. However, the pace of growth dropped off compared with the runaway 25 per cent increase in sales in 2022. 


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