LVMH, the owner of brands including Dior and Louis Vuitton, posted slower sales growth in the fourth quarter as pandemic restrictions in China and the spread of Covid-19 hurt spending in that crucial market. January has started well, the luxury giant said.
(Bloomberg) — LVMH, the owner of brands including Dior and Louis Vuitton, posted slower sales growth in the fourth quarter as pandemic restrictions in China and the spread of Covid-19 hurt spending in that crucial market. January has started well, the luxury giant said.
The key fashion and leather goods division saw organic sales rise 10% in the final three months of last year, LVMH said Thursday. That’s just above analysts’ estimates and the slowest pace of the year. The group’s cash cow Louis Vuitton crossed €20 billion euros ($21.8 billion) in sales last year, while the parent LVMH posted record revenue.
Billionaire Bernard Arnault, LVMH’s chief executive officer and the world’s richest man, said the company is confident heading into 2023, but remains “vigilant to current uncertainties.”
The somewhat softer quarterly results echo those of rivals Richemont, the owner of Cartier, and Burberry Group Plc. Both saw a slump in Chinese demand at the end of 2022, but said sales there had rebounded this month. LVMH Chief Financial Officer Jean-Jacques Guiony told reporters that results in China were “heavily down” last quarter, but that it’s going much better there so far this year.
LVMH’s results were described as a “mixed bag” by Citigroup analyst Thomas Chauvet, who highlighted a miss on operating profit. That was partly due to higher spending on advertising and promotions in the second half of the year.
“The reopening of China is a potential game-changer,” the analyst said, adding there are legitimate concerns about a slowdown in US demand.
Still, LVMH has so far experienced solid growth despite soaring inflation and slowing growth, making it a darling of investors. The luxury group recently became the first European company to surpass €400 billion in market value, while Arnault’s wealth now exceeds that of tech luminaries Elon Musk and Jeff Bezos. Celine meanwhile surpassed €2 billion in sales last year, Arnault added.
The stock has climbed 18% this year.
While LVMH doesn’t break out China results, sales in Asia excluding Japan sank 8% last quarter. That contrasts with growth of 22% in Europe, 29% in Japan and 7% in the US, according to Guiony.
Arnault said he’s confident Chinese authorities will aim to boost domestic economic growth. “If that’s the case, and it started in January, we have all the reasons to be confident” about LVMH’s performance there, he said, noting that trends in Macau “were incredible” so far this year.
Sales of high-end goods to Chinese customers — the industry’s top spenders prior to Covid — were constrained by pandemic-related restrictions for much of last year. While the abrupt end to strict Covid rules early last month initially led to a rapid spread of the virus that kept consumers at home, investors are now anticipating a V-shaped recovery.
Tourism Outlook
Guiony said that while LVMH is seeing significant growth rates in China since the year began, he doesn’t expect a return of Chinese tourists to Europe in large numbers until 2024. There’s still limited airline capacity to the continent and flights are costly, meaning the return of package tours remains some way off, he predicted. Tourists from China are more likely to return first to Macau, Hong Kong and South Korea, according to the CFO.
Chinese customers at home and abroad represented a third of the personal luxury goods market in 2019, but that shrank to between 17% to 19% last year, according to Bain & Co.
Separately, Arnault said profit from recurring operations at Tiffany & Co., acquired two years ago, came in above a billion euros last year. The billionaire said he believes its valuation would be probably double what it was when LVMH bought the US jewelry brand. Tiffany’s New York City flagship store that’s under renovation is due to reopen in the spring, but Arnault warned a delay is possible.
(Updates with comments from CEO Bernard Arnault)
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