The owner of Louis Vuitton enjoyed an unexpected rebound in consumers’ appetite for dresses and monogram bags, buoying third-quarter sales.
Organic revenue at LVMH’s fashion and leather goods unit jumped 12% in the third quarter as the world’s largest luxury company cited strong sales of items like Christian Dior’s $3,000-and-up Bobby bags. Analysts expected a 0.9% decline.
Thanks to the coronavirus pandemic that’s halted travel and disrupted networks of parallel importers, Chinese high-end shoppers like Meng — who collectively spend $111 billion a year on luxury goods, powering over a third of the global industry — are finding it hard to spend their cash.
The shares surged as much as 7.3% Friday in Paris, trading at the highest since January, after publishing the results late Thursday.
Some consumers are eager to splurge despite a dire economic backdrop. LVMH’s performance shows how its leading brands are helping it weather the pandemic’s destructive economic consequences after lockdowns and travel quarantines sent the luxury industry into a deep slump.
China is leading the rebound after it largely eradicated the virus domestically, and wealthy Chinese consumers are seeking comfort in retail therapy given ongoing curbs on international travel. Luxury firms including LVMH, Kering SA and Estee Lauder Cos. reported mid-double digit sales growth in China for the second quarter, while duty-free stores in Hainan recorded a 167% jump in sales during the week-long October national holiday.
However, some businesses fared worse. LVMH’s selective retailing unit — which includes DFS duty-free outlets and Sephora cosmetics store networks — saw organic revenue slump 29% amid a halt in international tourism.
With travel abroad nearly impossible, Chinese consumers who’ve driven the luxury industry’s growth are spending more at home. Pent-up spending desire during Covid-19 lockdowns earlier this year is also now being unleashed in so-called “revenge shopping”. The Louis Vuitton brand returned to growth in China in the third quarter, Chief Financial Officer Jean-Jacques Guiony said on a call.
“Many wealthy Chinese consumers are switching their spending from international travel to luxury purchases,” said Amrita Banta, Singapore-based managing director at luxury consultancy Agility Research. “We have seen a lot of interest in more iconic brands and also we have seen people upgrading to the more well-known brands.”
LVMH’s total revenue fell 7% on an organic basis, reaching 11.96 billion euros ($14 billion). Analysts expected a 12% drop. LVMH’s return to revenue growth in the fourth quarter is plausible following the successes of its fashion and leather goods unit, Deborah Aitken, a Bloomberg Intelligence analyst wrote in a note.
The company, known for cautious projections, said it remains concerned about the economic outlook as the coronavirus spreads again in key markets including Europe. Still, it said it will maintain marketing spending and other measures aimed at boosting the value of its brands.
“Luxury consumption isn’t a proxy for global consumption,” CFO Guiony said, cautioning that other sectors may not be similarly resilient.
The quarterly performance was driven largely by smart marketing at key brands such as Louis Vuitton and Dior, said Guillaume Gauville, an analyst at Credit Suisse.
“Investors should be careful in extrapolating this beat into other fashion brands,” he said in a note.
— With assistance by Daniela Wei, and Jinshan Hong
cover photo:Adrienne Surprenant/Bloomberg
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