LVMH looks to renewed china luxury spending for earnings bump

REUTERS
REUTERS

Summary

  • Bernard Arnault’s conglomerate has soared in valuation, but the industry faces headwinds from lower global growth

LVMH Moët Hennessy Louis Vuitton SE is scheduled to report fourth-quarter and full-year 2022 results later Thursday, as it rides a surge of demand for luxury goods that China’s recently loosened Covid-19 restrictions could extend into this year.

Postpandemic demand for LVMH’s dozens of brands, including fine wine, jewelry and fashion labels and upscale hotels, has cemented the group’s position as the most valuable listed company in Europe. It has also helped its chief executive and controlling shareholder, Bernard Arnault, overtake Elon Musk as the world’s richest person.

LVMH’s stock price has recently taken off anew, as China, one of the luxury industry’s biggest markets, drops many of its pandemic-era restrictions. For more than two years, those restrictions have kept Chinese tourists far from Paris, London and Milan, where they once snapped up shoes, purses and jewelry.

Thursday’s results will also come shortly after the company said it would embark on one of its biggest management shake-ups in years. It involved a number of the company’s top managers as well as Mr. Arnault’s daughter, Delphine Arnault, and some of its biggest brands.

Many of the world’s best-known luxury brands have been able to raise prices steadily through the pandemic. Shoppers, many of whom had saved up money as they stayed indoors during lockdowns and other restrictions, have let loose. High-end shoppers have also proven more resilient to the steep inflation that Covid-19 restrictions gave way to. Luxury-goods supply chains, often highly local, weren’t disrupted as much by the pandemic and later the war in Ukraine.

That has all helped LVMH emerge from the pandemic as Europe’s largest company by market value, outstripping the continent’s industrial stalwarts, such as Shell PLC, Airbus SE and Volkswagen AG, which have all struggled with a series of shocks to their businesses.

Questions remain, however, about how long this postpandemic boom for luxury goods will last, as economic prospects in the U.S. and Europe remain uncertain. In a recent report, consulting firm Bain & Co. forecast that sales of personal luxury goods would rise between 3% and 8% in 2023, a sharp slowdown from last year’s estimated 22% growth.

A poll of analysts’ estimates compiled by FactSet estimates the French luxury-goods conglomerate will book quarterly sales of 22.44 billion euros, equivalent to about $24.5 billion, in last year’s final quarter, up from €20.04 billion during the same quarter the prior year. Net profit is expected to come in at €14.61 billion for the full year, up 21% from the previous year.

British fashion house Burberry Group PLC and Cartier owner Cie. Financière Richemont SA said last week that sales to Chinese shoppers were starting to pick up after fourth-quarter lockdowns dragged them down. That could be an early sign of recovery in what was the luxury industry’s biggest market before the pandemic.

“The market is likely to look past any Covid-19 setback in China in [the fourth quarter] to focus on the country’s reopening tailwind for the sector this year," Stifel analyst Rogerio Fujimori wrote in a research note this week. January sales growth will have turned positive for LVMH in China, also helped by the earlier start to the weeklong Lunar New Year holiday, Mr. Fujimori added.

Amid China’s Covid-19 hibernation, the U.S. emerged as the luxury industry’s biggest market. Americans accounted for between 32% and 34% of global luxury spending last year, a sharp increase from the 22% they represented in 2019, prepandemic, according to the Bain report.

While LVMH doesn’t typically break out the financial performance of its individual brands, investors will be looking for clues about the performance of the likes of Louis Vuitton and Dior, which together account for around 70% of the company’s core profit, according to the estimates of analysts at UBS.

Pietro Beccari, who currently runs Dior, will take the helm of Louis Vuitton next month. At Dior, Mr. Beccari opened a new flagship store that extends over five levels in Paris’s luxury shopping district. He has also pushed an array of high-visibility marketing projects around the globe.

Mr. Arnault tapped his daughter Delphine to succeed Mr. Beccari at Dior. The change marks a homecoming of sorts for Ms. Arnault, who worked for 12 years at Dior before joining Louis Vuitton, where she was in charge of all product-related activities. She was recently responsible for a collaboration between the brand and reclusive Japanese artist Yayoi Kusama for a new collection.

Dior’s revenue has more than tripled over the past five years, analysts say. How Ms. Arnault handles her first job as a brand CEO could have bearing on whether she is seen as a possible successor to her father.

This story has been published from a wire agency feed without modifications to the text

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