LVMH Bullish After Strong Quarter
● The world’s largest luxury group saw double-digit growth in the third quarter, driven by strong local demand and returning foreign visitors in Europe, the U.S. and Japan.
PARIS — It was smooth sailing in the third quarter for LVMH Moët Hennessy Louis Vuitton despite growing concerns about a global recession.
“I've learned that in economy when things are announced in advance, they usually don't happen because economic agents take measures to avoid them,” Jean-Jacques Guiony, chief financial officer of LVMH, told analysts during a conference call on Tuesday.
The luxury conglomerate stated Tuesday its “growth continues at the same pace.”
Revenues soared 19 percent in the third quarter, as Europe, the U.S. and Japan benefited from the conjunction of strong local demand and the return of foreign visitors.
The group's sales in Asia also showed “significant improvement,” aided by the partial lifting of COVID-19 related restrictions.
Total revenues in the three months to Sept. 30 totaled 19.76 billion euros, well exceeding the Bloomberg consensus estimate of 18.83 billion euros. That represented a rise of 19 percent on a like-forlike basis versus the same period last year.
For the third quarter, LVMH reported double-digit organic growth in all divisions.
In its key fashion and leather goods division, organic sales grew 22 percent during the period, beating the forecasted 16.2 percent consensus.
Sales of watches and jewelry were up 16 percent, versus a consensus of 14.3 percent, as Asia perked up in the third quarter, thanks to the improved pandemic situation in China.
Perfumes and cosmetics also performed above consensus, showing a 10 percent increase. Meanwhile, the selective retailing division, which recorded a 15 percent growth, was below analysts' forecast.
Reporting third-quarter results after the close of the Paris Bourse, LVMH said its sales for the first nine months of 2022 were 56.5 billion euros, a 28 percent year-overyear leap amounting to an organic growth of 20 percent.
Growth was driven by the fashion and leather goods division, which grew 24 percent to 27.82 billion euros in organic terms, with Louis Vuitton and Christian Dior Couture continuing to shine, and Celine and Loewe experiencing “very strong growth.” Loro Piana also maintained “good momentum.”
Dior was singled out for its outstanding growth in all product categories, with an “excellent performance” of its leather goods and ready-to-wear as well as the “continued success” of designs like the Lady Dior bag.
Watches and jewelry rose 16 percent in organic terms, buoyed by Bulgari's growth driven by jewelry; and Tiffany & Co.'s “strong momentum” in the U.S., where its Lock collection was off to a “solid start,” although analysts queried Guiony about a perceived slowdown at Tiffany.
The executive reiterated that the American jeweler's growth was still in the double digits and while he allowed that it had slowed compared to effervescent earlier quarters, its overall performance in organic terms was “still very satisfactory.”
He described the group as “extremely happy” with how Tiffany's business reacted following changes enacted since the 2021 acquisition and that its performance was “still way above what [LVMH] had in mind” following its purchase.
Strong performance in watches had him commenting that it was “a category that is well-suited to an inflation environment,” but that he could not pinpoint a root cause. “I'd rather have good numbers that I can't fully explain than the other way around,” quipped Guiony.
Selective retailing leapt 20 percent during the first nine months of the year. Sephora had an “excellent performance,” with a strong rebound of its stores' activity. Meanwhile, its travel-retail counterpart
DFS continued to suffer from persistent difficulties due to continuing sanitary restrictions in Asia.
Across geographies, the group described “a balanced mix of revenue around the world,” although Asia's share diminished to 32 percent, down from 36 percent in the same ninemonth period in 2021, with Europe and the U.S. benefiting from this reshuffling.
There was a profusion of questions around China, ranging from its consumer base growth to the duty-free strategy, especially in Hainan, when the country reopens to international travel.
Overall, the executive cautioned against talking about recovery in China, highlighting that “things are better than in the second quarter,” but “they are not back to normal” as lockdowns and supply chain disruptions continue.
As for duty free, while there is “significant business to be done” in Hainan, the question was a “non-starter” as LVMH would not move “at the expense of [its] business philosophy, which is to control the business [it does] in [its] own retail stores,” Guiony pointed out, noting that duty-paid stand-alone boutiques on the island were an option.
Asked how digital retail was going as consumers return to stores, Guiony said that with the exclusion of mainland China where the pandemic continues to impact operations, business was shifting back toward brick-and-mortar, with the growth rate of digital slowing down.
“But don't take me wrong – digital is still growing double digit,” the executive said, citing its 13 percent share of total sales, against 14 percent last year.
Prices also had analysts querying Guiony about the group's plans — especially at Louis Vuitton and Dior — both in the context of a possible recession and in light of the dollar's continued strength.
This had Guiony commenting that “it seems like pricing power is the sort of windfall comes from the sky” with haves and have-nots among brands, reminding that both houses were now enjoying desirability cultivated through “marketing, product, distribution strategies” — over long periods of time.
Increasing prices in Europe because of U.S. consumers flocking there to enjoy the benefits of a strong dollar was not on the table for now, Guiony said, noting that “currencies would be a tailwind this year and next year” across business lines. Currency impact for the third quarter went from 8 to 10 percent in the third quarter.
Overall, “luxury is not a proxy for the general economy,” reminded Guiony, noting that the behavior of affluent consumers was more sensitive to real estate or stock market shocks than NGDP fluctuations “at this point in time.”
While the sector is not immune to shocks or recession – Guiony noted the latter “has not materialized into full swing yet…if ever it does” – “the most important point [was] that unlike some industries, [luxury businesses] have the ability to pass [increased costs of doing business] on to customers,” he said.
For now and like competitors, the luxury group is facing “a certain level of price pressure” but, according to Guiony, “nothing unpalatable.”
This later had Bernstein's Luca Solca commenting in a note analyzing LVMH's results that “the high-end consumers have yet to suffer the impact of higher inflation and lower macroeconomic growth — the relief of getting out of the pandemic alive has trumped any bad news, as consumers who can embrace a ‘carpe diem' attitude: nobody wants to be the richest person in the graveyard.”
For the last quarter of 2022, the luxury behemoth expressed confidence that its current growth trend will continue, despite the uncertain economic and geopolitical context.
Kering and Hermès International are due to report third-quarter results on Oct. 20. Meanwhile, Compagnie Financière Richemont will release its first-half results on Nov. 11.