LVMH Rises to Record High as Sales Point to Industry Rebound

  • Asia leads first-quarter revenue growth as optimism increases
  • Fashion and drinks units significantly ahead of expectations

Rebounding demand for luxury goods in China and Europe boosted first-quarter sales at industry leader LVMH far beyond estimates, pushing the shares to record highs and spurring optimism for a sustained revival.

Figures released after markets closed on Monday showed first-quarter organic revenue rose 13 percent, compared with the 8 percent median forecast. All divisions beat estimates, with Louis Vuitton fashions and Hennessy cognac standing out, and Asia the strongest performing region. The stock gained as much as 2.9 percent to 213.50 euros, 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’s undergoing a turnaround after several years of ebbing demand in China and a slowdown in travel to Europe. The performance benefited from comparison with a period of last year when the industry was struggling with the aftermath of terror attacks in Paris. Such levels of growth shouldn’t be expected for the full year, the company said.

“As the sector bellwether, LVMH’s beat should support the luxury space,” wrote Rogerio Fujimori, an analyst at RBC Europe. The results “also raise the bar for other stocks reporting in coming weeks.”

Prada SpA is due to report full-year earnings April 12, while Gucci owner Kering SA will announce first-quarter results on April 25. Kering shares rose as much as 1.4 percent.

Fashion Flourish

LVMH’s quarterly sales rose 15 percent to 9.88 billion euros ($10.5 billion). Analysts had predicted 9.5 billion euros, 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 percent in the quarter, compared with the 9 percent estimated by 16 analysts surveyed by Bloomberg. Revenue in the key division, which generated more than half of the company’s 7 billion euros in earnings last year, had been unchanged in the same quarter of 2016.

“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.

Asia’s 20 percent growth in organic sales represented the strongest regional performance, followed by gains of 14 percent in Europe, 9 percent in the U.S. and 2 percent in Japan.

Hennessy Growth

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 11.9 billion euros in 2016 -- but has the narrowest margins. DFS has been dragging down the division and offsetting the strong performance by Sephora, according to 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.

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