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LVMH’s Q1 Shrugs Off Inflation, But Can It Last?

LVMH Moët Hennessy Louis Vuitton’s fashion and leather goods business helped drive a 29 percent gain in first-quarter revenues for the world’s largest luxury firm.

In a Nutshell: LVMH said the company had “an excellent start” to the year. Highlights for the quarter ended March 31 include the late Virgil Abloh’s final Autumn-Winter 2022 men’s collection and Nicolas Ghesquière’s women’s collection. The company said its Christian Dior fashion house enjoyed “another remarkable performance,” while Fendi recorded “solid growth,” driven by the success of Kim Jones’ collections.

By region, sales in the U.S. and Europe posted double-digit revenue growth, while Asia  continued to grow over the quarter despite the impact of tightening health restrictions in China in March.

Dana Telsey of Telsey Advisory Group (TAG) said that Europe turned in the strongest organic growth in the quarter, up 45 percent, followed by Japan at 30 percent and the U.S. at 26 percent. Organic growth in Asia, excluding Japan, was up percent. Telsey kept TAG’s “Outperform” rating and a per share price target of 800 euros ($871.24). Shares of LVMH are currently trading in the range of 634 euros ($690.46). Although there are geopolitical pressures and a spike in Covid, she said the company continues to experience strong gains across its diversified brand portfolio.

“In our view, the first-quarter results are evidence of LVMH’s strong competitive positioning through a diverse offering and expansive geographic reach that can help the company weather potential shifts in consumer behavior and volatility in the global macro environment,” Telsey said, adding that LVMH’s exposure to a varied range of consumer verticals gives it a competitive advantage.

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Retailing and luxury analyst Oliver Chen at Cowen & Co., who labeled LVMH’s first-quarter results as “impressive,” also has an “Outperform” rating on shares of LVMH. While lack of visibility on the impact from China lockdowns are an investor concern, Chen said the growing importance of the U.S. market and Europe could “offset muted trends in Asia.”

“The Asia region now represents 37 percent of LVMH’s total revenue, which is down from 41 percent last year. Conversely, Europe and the U.S. contribute to a larger portion of revenues versus last year at 14 percent and 24 percent, respectively,” Chen noted.  “One of the levers LVMH can pull to help grow the business and offset increasing costs is the ability to raise prices.

Net Sales: The company reported a 29 percent gain in revenue to 18 billion euros ($19.6 billion) from 13.96 billion euros ($15.2 billion) in the year-ago period.

LVMH’s best performing business in the quarter was fashion and leather goods, which rose 35 percent to 9.12 billion euros ($9.93 billion) from 6.74 billion euros ($7.34 billion). The business saw organic growth of 30 percent in the quarter. Also doing well was selective retailing, which includes beauty retailer Sephora and its duty-free DFS operation and was up 30 percent to 3.04 billion euros ($3.31 billion) from 2.34 billion euros ($2.55 billion). Its other categories such as perfumes and cosmetics and watches and jewelry were up in the double-digit percentage range, while wines and spirits was up just 8 percent.

Despite the dramatic events in Ukraine and the continued health crisis, LVMH saw overall organic revenue growth of 23 percent for the quarter. The company in March temporarily closed its stores in Russia following the escalation of the conflict between that country and Ukraine.

In February, rumblings of LVMH’s interest in American luxury firm Ralph Lauren Corp. surfaced, this time noting that there were exploratory talks between the two. The interest in the American firm wasn’t a surprise, given that LVMH is fairly acquisitive and in 2020 was locked in a monetary battle with Tiffany & Co. that saw the French firm garner a $400 million discount to the original purchase price. The two companies had initially reached an agreement in November 2019 for a deal valued at $16.2 billion. Ongoing trade tariffs led to a brouhaha that some felt was merely LVMH’s chair Bernard Arnault’s jockeying for a price adjustment. He ultimately prevailed, with the $400 million discount lowering the price tag to $15.8 billion.

Company’s Take: “In the current geopolitical context and in light of the ongoing impact of the pandemic, LVMH remains both vigilant and confident at the beginning of this year. The Group will continue to pursue its strategy focused on the development of its brands, driven by strong innovation and investment as well as a constant quest for quality in its products and their distribution,” the company said.