(News Bulletin 247) – The leading luxury group has published sales growth well above expectations, sending a strong signal for the entire sector. Japan in particular drove activity up, while the dynamics of society in the United States are normalizing.

First tenant of the CAC 40 and first luxury group to unveil its activity for the first quarter, LVMH has set the bar very high.

The group led by Bernard Arnault shattered expectations, which was greeted by a 4.3% share increase this Thursday around 11 a.m. Which also brings the CAC 40 to a new historic high in the session of 7,478.18 points, hit at 9:33 a.m.

Over the first three months of 2023, the group with 75 houses, including Louis Vuitton, Christian Dior, Fendi and Berluti, recorded growth of 17% over one year, both in published data and on a comparable basis, establishing its revenues at 21.035 billion euros. As Royal Bank of Canada points out, analysts on average were expecting an increase of “only” 10%. Deutsche Bank notes that half of this outperformance is due to the dynamism of the group’s largest division, namely fashion and leather goods, which recorded like-for-like growth of 18%.

Selective distribution, which includes Sephora and “travel retail” (airport distribution) jumped 28%, driven by the resumption of international travel, particularly to Macao and Hong Kong. Wines and spirits posted a decline in growth (+3%), due to a 5% drop in cognac sales, themselves penalized by the high level of inventories in the United States.

Slowdown in the United States

LVMH obviously benefited from the start of recovery in China, a country which has benefited from the total easing of health restrictions since the beginning of January. The group led by Bernard Arnault does not detail its sales in the second world economy. But the “Asia excluding Japan” division recorded like-for-like growth of 14% in the first quarter, marking a recovery from the 8% decline recorded in the fourth quarter of 2022. The group’s chief financial officer, Jean-Jacques Guiony , told analysts that the country had recorded “double-digit” growth and said it was “extremely optimistic”, saying the company’s start to the year in China “bodes well” for the future.

Bank Stifel believes that China’s contribution to growth (also including spending by Chinese tourists abroad) should accelerate from the second quarter, which “could protect LVMH from a potential slowdown in demand in Europe and the United States”.

Precisely, the United States accuses the blow somewhat. LVMH’s growth in the leading luxury market was 8% in the first quarter on a like-for-like basis, which is a little better than in the last three months of 2022 (+7%). But this performance is largely driven by Sephora as well as by perfumes and cosmetics. For the other products of the group, Jean-Jacques Guiony underlined that a small slowdown was observed. Spending by American consumers (in the United States and abroad) was stable in the first quarter in the fashion and leather goods division, notably indicated the chief financial officer.

“The normalization factor is probably not far away [aux Etats-Unis, NDLR] and it could logically extend to Europe, especially if the recovery of the euro were to continue. The growth recovery of the Chinese market apparently well underway in the first quarter will not be too much to compensate for a possible loss of momentum [dynamique, NDLR] combination of Europe and the United States”, stresses Invest Securities.

Japan in great shape

Note also the excellent performance of Japan, with growth of 34% over the first three months of the year. Activity benefited from a slight upturn in spending by tourists and above all from the strength of local spending by Japanese consumers, apparently confident in the future of their economy, much less affected by inflation than Western countries, tried to explain Jean-Jacques Guiony. The leader, however, acknowledged that this performance was not easy to decipher. “I’d rather have good hard-to-explain numbers than the other way around,” he said.

In the end, despite signs of a slowdown in the United States, LVMH delivered a “reassuring” start to the year, considers Stifel. Credit Suisse, for its part, evokes a “solid” publication, raising its price target to 1,005 euros against 960 euros.

Above all, LVMH sent a positive signal for its entire sector. Which leads it to pull, on the stock market, the other luxury groups in its wake. Hermes takes 3.1%, L’Oréal 1.9% and Kering 1.8%. In London, Burberry wins 1.8% while in Zürich Richemont wins 3%. “Overall, we believe that [la publication de LVMH] supports the already high expectations for Hermes and Burberry (given the strong growth of fashion in leather goods in China) and for Richemont (given a more sustained demand in jewelry)”, dissects Deutsche Bank.

However, in view of the strong rise in the stock market of luxury groups – the Stoxx Europe luxury 10 sector index has gained 22% since the start of the year – investors could be led to be selective.

“Although we are generally positive on Luxury, we believe that there is a risk in certain areas – in particular the United States – on the speed of the recovery in China”, warns Credit Suisse. “In this context, LVMH remains one of our favorite values ​​because of its positioning, the power of its brands, its diversification and its generation of cash flow”, concludes the Swiss bank.