LVMH Climbs on Upbeat 2007 Forecast

Gift-givers spared no expense in 2006 and the trend is expected to continue throughout this year

Shares in luxury goods conglomerate LVMH soared 6% to €87.70 ($115.26) on Feb. 15 in Euronext trading, following the release of a glowing 2006 earnings report on Feb. 14. The company predicted continued strong results in 2007.

Despite continued sluggish sales in the key Japanese market, the diversified luxury group—which includes Louis Vuitton, Dom Perignon, Hennessy, and Tag Heuer—saw double-digit growth in most of its divisions and posted record numbers across the company. Total sales for the year were up nearly 10% vs. 2005, to €15.3 billion ($20 billion), while net profit grew an impressive 30% on the year, to €1.879 billion ($2 billion).

"These numbers increased our confidence that 2007 will be another good year for the group," said London-based JPMorgan Chase (JPM) luxury goods analyst Melanie Flouquet in a report. Flouquet reiterated an "overweight" rating for LVMH and raised her January 2008 target price for the stock to €102 ($134).

Lap of Luxury

Investors followed these positive indicators from LVMH to give the group its strongest single-day movement on Euronext in nearly a year. A Feb. 14 report from Goldman Sachs (GS) in London predicted a rally based on the possibility that LVMH will use its strong cash flow to buy up the stake in Moët Hennessy, now jointly owned with beer, wine, and spirits giant Diageo (DEO).

While sales were strong across all of LVMH's brands in 2006, the group's Wine & Spirits and Watches & Jewelry divisions performed particularly well. The latter boosted its sales nearly 30% over 2005, to €737 million ($965 million), while Wine & Spirits sales climbed 14% to nearly €3 billion ($4 billion).

Both Flouquet and Goldman Sachs forecast more good news in 2007 for LVMH, based on signs of a rebound in Japan and expectations for further expansion in China. Recent upward revisions in expectations for economic growth in the Eurozone also could boost sales of luxury goods.