LVMH Report Signals Luxury Rebound?

Louis Vuitton brand's 2010 Monogram Collection, one of the luxurygoods conglomerate's best performers

Louis Vuitton brand's 2010 Monogram Collection, one of the luxurygoods conglomerate's best performers

Paris–This week’s strong first quarter showing by LVMH Moët Hennessy Louis Vuitton is fueling speculation that the “austerity chic” has ended for affluent consumers.

When LVMH, the world’s leading luxurygoods conglomerate reported that its first-quarter revenue exceeded expectations, hitting 13% over the same period last year, many analysts project that luxurygood consumers are returning again to more conspicuous consumption. Sales for the first quarter rose to $6.06 billion, up from $5.43 billion a year ago with all divisions posting double-digit organic growth.

Of particular note was the 20% increase in LVMH’s wine and spirits division where champagne brands such as Moët Chandon, Dom Pérignon and Krug had 33% increases. And at LVMH’s watch and jewelry division, sales increased 34% driven by demand for the company’s high-end watch brands, most notably TAG Heuer, which introduced its new 1887 movement in Basel last month, and Hublot which reported sales in its King Power collection. The fashion and leathergoods division, where brand Louis Vuitton continues “exceptional performance,” sales increased 8% over last year, up 10% on an organic basis. Louis Vuitton was up in the “double digits” and Fendi is also off to strong start.

Market analysts were particularly stoked that LVMH reports that its retailers and wholesale distributors had begun replenishing their inventories after being cautious and destocking over the last year. Moreover, LVMH’s stock value has increased 76% in the last year with a “feel good” factor spilling over to its competitors such as Gucci-owner PPR and Richemont.

“This set of results confirms my expectation of a fast-rebounding luxury market, supported by the exceptional strength of emerging markets and a wholesale rebound,” says Bernstein analyst Luca Solca. Dennis Weber, analyst at Evolution Securities, says: “It is much better than expected, across the board.” Analysts at HSBC said in a note: “There seems to be a perfect alignment of stars for LVMH at the moment…The mood of the luxurygood consumer has changed, particularly in markets such as China.” (Sales of jewelry were up 75% in Asia, and 18% at Louis Vuitton which plans two new stores in Shaghai.)

“These figures bode well for the entire sector,” adds François-Régis, a luxurygoods analyst at Oddo Securities.

LVMH executives, however, are trying to keep optimism from soaring too high too soon. The company said Thursday its growth in 2010 is unlikely to match that of the first three months of the year. In fact, CEO Bernard Arnault told a shareholders’ meeting the company intends to expand its network of retail stores this year, but not too rapidly.

Chris Hollis, LVMH’s financial communications director, cautions that “it would be premature to declare the beginning of an upturn. There are signs of improved demand from consumers but it is difficult to measure precisely…it is too early to draw conclusions about the demand for the balance of the year.” Still, LVMH also announced last week that it would be stepping up its expansion into the luxury hotel business.

Although sales increases are seen in its top markets of the United States, Western Europe, China and parts of Asia, the Japan market continues to be sluggish, down 7% percent in local currencies.

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