Finance

Luxury goods frenzy pushes LVMH to new heights

LVMH updates

Luxury goods leader LVMH has steamed ahead again in the second quarter, selling more Louis Vuitton handbags and Moët champagne to affluent consumers and putting it on track to far exceed its pre-pandemic sales this year.

The group, which is controlled by billionaire Bernard Arnault, benefited from strong demand in the US and China, its biggest markets, which has not faded despite concerns among some investors that luxury would suffer once people were able to spend on travel and entertainment again.

Revenue in the second quarter was €14.7bn, 14 per cent higher than the same period in 2019 before the pandemic, excluding the impact of acquisitions and currency moves. That was ahead of analyst forecasts for €14.2bn in sales, according to Refinitiv data.

“Demand is very strong everywhere in the world, and in almost all of our categories,” said chief financial officer Jean Jacques Guiony. “We are coming out of the crisis with remarkable levels of profitability.”

LVMH’s biggest division of fashion and leather goods, which brings in almost three-quarters of annual operating profit and includes brands like Louis Vuitton and Christian Dior, powered most of the growth. It more than offset continued weakness in what was LVMH’s second-biggest business before the pandemic, its “selective retailing” division that relies heavily on duty-free stores in airports.

Wines and spirits sales also picked up with champagne volumes 10 per cent higher in the first half compared with the same period in 2019, driven by demand in the US and Europe.

LVMH’s operating margin rose to a new high of 26.6 per cent in the first half, 5.5 points ahead of the same period in 2019. Margins at fashion and leather goods were 40.8 per cent in the first half, ahead of the 37.4 per cent predicted by Jefferies analysts.

Guiony told analysts that while LVMH would likely have to spend more in the second half on marketing and fashion shows, he did not expect margins to fall.

The results show how the luxury sector’s biggest groups have overcome challenges posed by the pandemic, such as the disruption of international travel that left big-spending Chinese consumers unable to shop in Europe. Instead, their spending is happening at home in China and online.

Luxury shoppers have also flocked to classic brands during the pandemic, allowing the biggest groups to take market share from smaller rivals. Analysts have argued that a gulf has opened up between the top tier, which includes LVMH, Kering, Hermes, Chanel and Richemont, and smaller groups such as Burberry and Ferragamo that will struggle to keep up. 

LVMH shares have climbed roughly 30 per cent this year to reach all-time highs of €673 per share on Monday before the results were published. It is now the biggest company in Europe by market capitalisation, and Arnault is the world’s third-richest man behind Amazon founder Jeff Bezos and Tesla founder Elon Musk.

“The very strong update from the sector leader should prompt upward earnings revisions for this year and next, and set the sector on an even keel,” wrote Bernstein analyst Luca Solca in a note. “LVMH is seen as the bellwether of the luxury goods industry — this update should reassure.”

Luxury groups Kering and Moncler will report results on Tuesday and Hermes follows on Friday.

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