LVMH has luxury market in the bag as shares soar
By Robert Williams - Apr 12th 2017, 11:10
Paris — LVMH shares rose to a record in Paris after the luxury leader’s sales far exceeded estimates on rebounding demand for items from Louis Vuitton bags to Hennessy cognac.
Figures released after markets closed on Monday showed first-quarter organic revenue rose 13%, compared with the 8% median forecast.
All divisions beat estimates, with the fashion and drinks units standing out. The stock gained as much as 2.9% to €213.50, the steepest intraday advance in more than a month.
Investment in brands such as Louis Vuitton has enabled LVMH to extend its leadership of an industry that is undergoing a turnaround after several years of ebbing demand in China and a slowdown in travel to Europe.
Such levels of growth should not be expected for the full year, the company said.
"As the sector bellwether, LVMH’s beat should support the luxury space," said RBC Europe analyst Rogerio Fujimori. The results "also raise the bar for other stocks reporting in coming weeks".
Prada SpA is due to report full-year earnings on Wednesday, while Gucci owner Kering will announce first-quarter results on April 25. Kering shares rose 1.4% in Paris.
LVMH’s quarterly sales rose 15% to €9.88bn. Analysts had predicted €9.5bn, according to the median of 17 estimates.
The beat was the biggest in six years, according to data compiled by Bloomberg.
Growth was led by its fashion and leather-goods unit, where organic sales rose 15% in the quarter, compared with the 9% estimated by 16 analysts surveyed by Bloomberg.
"There is a better consumer environment for luxury and LVMH is gaining share," said Mario Ortelli, an analyst at Sanford C Bernstein.
He cited product innovation at Louis Vuitton and rapid growth in the Fendi brand as driving gains in fashion and leather goods.
The wines-and-spirits and perfume-and-cosmetics units also came in well ahead of analyst projections, as did the selective retailing division, which includes beauty emporium Sephora and the tax-free airport retailer DFS.
Selective retailing is the group’s second-largest division, with sales of €11.9bn in 2016 — but has the narrowest margins.
DFS has been dragging down the division and offsetting the strong performance by Sephora, said Deborah Aitken, an analyst at Bloomberg Intelligence.
"This could be an important turnaround," Aitken said.
A steep increase in Hennessy cognac’s volume during the quarter will lead to a shortage of inventory for the rest of the year, the company said, repeating an earlier warning. © BusinessLIVE MMXVII
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