(News Bulletin 247) – The number one luxury company suffered a slowdown in its growth over the first three months of the year and published revenues lower than expectations in absolute terms. However, its fashion and leather goods division shows signs of resilience in China and the United States. The action is progressing significantly this Wednesday.

It is perhaps Deutsche Bank which best sums up the LVMH publication delivered Tuesday evening. The German bank refers to “a first quarter weak in absolute terms but robust in relative terms”.

The world number one in luxury has certainly seen its growth fade significantly over the first three months of the year. In published data, the revenues of the group that owns Louis Vuitton, Dior and Celine, even fell by 2% year-on-year and were lower than expectations.

Turnover amounted to 20.69 billion euros against expected revenues of 21.114 billion euros, according to the consensus cited by Royal Bank of Canada.

However, this failure is mainly explained by negative impacts of exchange rates and scope that are stronger than anticipated by analysts (4 percentage points for exchange rates and 1 point for scope).

So organic growth, which excludes currency and scope variations and thus constitutes the “purest” measure of growth, does not disappoint.

“It is not bad at all”

LVMH thus saw its sales increase by 3% year-on-year in organic data, in line with consensus expectations. “After 17% last year, it’s really not bad at all. We’re not unhappy,” financial director Jean-Jacques Guiony told press agencies.

The fashion and leather goods division, which represents half of LVMH’s revenues, posted growth of 2%, very slightly below expectations, housed at 3% according to Stifel. The bank emphasizes, however, that the “buy-sides”, that is to say to simplify investors, had been extra cautious before this publication and anticipated a figure close to 2%.

LVMH is, it is true, showing a significant slowdown. In the fourth quarter of 2023, the group’s growth reached 10% on a comparable basis, including 9% for fashion and leather goods.

But this decline is partly explained by a base effect on China which distorts the one-year comparison. In the last quarter of 2022, Beijing implemented health restriction measures which weighed on growth before removing them and then reopening its economy in the first quarter of 2023, which resulted in a clear recovery in activity.

In other words, LVMH’s last quarter of 2023 benefited from a very lenient basis of comparison, an effect which was reversed in the first quarter of 2024.

The United States reassures, China is in reality dynamic

Furthermore, beyond the growth figures by division, several reassuring elements should be noted.

LVMH saw its sales resist in Europe, with an increase of 2% on a comparable basis, but especially in the United States. The company’s revenue also increased by 2% in this country. This constitutes an appreciable performance in a region where the persistence of inflation is putting pressure on the “aspirational” luxury clientele, that is to say younger buyers oriented towards the least expensive products. Deutsche Bank thus welcomes sales that are “more resilient than feared” in the United States.

Jean-Jacques Guiony explained that LVMH still saw a “polarization” between these aspirational buyers and wealthier customers. The jeweler Tiffany also has high exposure to this aspirational group.

Furthermore, sales in Asia excluding Japan certainly fell by 6% excluding currency and scope effects, raising questions about China, while Japan grew by 32% on a comparable basis. But these figures must be qualified.

Jean-Jacques Guiony explained to analysts that Chinese growth remained solid, despite the unfavorable base effect. The Chinese “cluster”, that is to say the sales of Chinese consumers in China but also abroad (which are thus counted in other regions) increased by 10% over the quarter in the fashion division and leather goods, the manager explained to analysts.

“The Chinese cluster saved the day with reassuring growth of 10% in the first quarter, driven by very strong growth in purchases abroad, which boosted sales, particularly in Japan,” explains Stifel. The weakness of the yen may have encouraged Chinese tourists to spend their money in Japan.

A promising second half

Ultimately, the publication contains enough positive points to allow LVMH shares to progress this Wednesday. The stock rose 3.9% around 11:15 a.m., by far the largest increase in the CAC 40.

“Given the weakness of the publications of Kering (which had published a warning on its income, editor’s note) and Burberry, we believe that these figures (from LVMH, editor’s note) reassure about the diversification of the sector, consumers turning again towards more high-end brands”, concludes Deutsche Bank.

Enough to reinforce investor confidence, while LVMH should especially regain momentum in the second part of the year.

“The prospects of a gradual re-acceleration of growth in the fashion and leather goods sector, while the basis of comparisons softens in the second half of 2024, could improve investor sentiment,” underlines Stifel.

In this logic, Oddo BHF anticipates an increase in growth in “fashion and leather goods” this year: 4% in the second quarter, 8% in the third and 10% in the fourth.

“We continue to believe that the acceleration of turnover in the second half of 2024 is the keystone (on the stock market, editor’s note) for LVMH and the entire luxury sector. At this stage, it is still too early to say whether this trajectory is realistic or not, given the persistent geopolitical risks and the American presidential elections. However, the Paris Olympic Games (of which LVMH is a tier 1 sponsor) could provide a useful boost. Royal Bank of Canada side.

Asked about the impact of the 2024 Olympic Games during the conference with analysts, Jean-Jacques Guiony put it into perspective. Based on previous Games (Beijing, London) the manager explained that these events had an overall neutral impact for the group.