LVMH cautious as sales surge

Models presenting French designer Nicolas Ghesquiere's Spring/Summer 2018 Ready to Wear collection for LVMH fashion house Louis Vuitton during Paris Fashion Week earlier this month.
Models presenting French designer Nicolas Ghesquiere's Spring/Summer 2018 Ready to Wear collection for LVMH fashion house Louis Vuitton during Paris Fashion Week earlier this month.PHOTO: EPA-EFE

World's biggest luxury goods company says pitfalls include dwindling cognac stocks and strengthening euro

PARIS • LVMH is not popping all the champagne bottles in celebration yet, even as the world's biggest luxury goods company produced stronger than expected sales growth in the third quarter.

The news on Tuesday sent its shares towards record highs - though management also cautioned that the months ahead might be bumpier .

Chinese demand for LVMH's high-end clothing labels and liquor helped sales to catapult more than expected in the third quarter, boosting its shares and those of its competitors.

But the Paris-based group, home to fashion houses such as Louis Vuitton and Fendi as well as champagne maker Moet & Chandon, warned of pitfalls that could weigh on growth in the fourth quarter, including dwindling cognac stocks.

LVMH, like its rivals, is grappling with a strengthening euro that could dampen tourist spending.

It also faces tougher comparisons between October and December, when earnings will compare to those of a year earlier - when a recovery in Chinese spending following a recession was already in full swing.

"The real tough comparison base starts in September and in the fourth quarter," LVMH's chief financial officer Jean-Jacques Guiony told a conference call on Tuesday.

"We still feel the challenges identified at the beginning of the year are still there."

LVMH has been cautious for a while about the impact of political events on luxury spending, including Britain's vote to leave the European Union, Mr Donald Trump's election to the White House and escalating diplomatic tensions over North Korea.

In an industry exposed to rapidly-changing consumer tastes, luxury goods companies are sensitive to anything that could affect tourist flow or dampen demand from clients in all-important regions such as Asia.

Still, there was some reason to say cheers.

Goldman Sachs analysts wrote in a note that "the continued strong growth in the third quarter despite tougher comparisons signals a positive demand environment among luxury consumers that is encouraging for the broader luxury sector".

LVMH also revealed a strong performance in its perfume and cosmetics business, which includes brands such as Benefit and Guerlain.

But LVMH said production constraints around its Hennessy cognac business, and specifically the lower-end "very special" categories that are popular in the United States, are unlikely to fade soon.

A frosty spring this year and hail last year had also hurt cognac production that was yet to hit the market. Hennessy would have to carefully manage current stocks to tide itself through the blips to come, LVMH said.

Still, the company's strong position in fashion and leather goods, as well as beauty - which does not seem to be losing steam despite a couple of very strong years for the cosmetics industry - should put it in a good position to withstand choppier conditions.

Its conglomerate structure offers useful diversification and also can act as an early-warning system for the whole group if one arm detects trouble ahead.

And the integration of Christian Dior Couture, which LVMH acquired earlier this year, will not hurt either.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 12, 2017, with the headline 'LVMH cautious as sales surge'. Print Edition | Subscribe