In the Spotlight – LVMH and the luxury rebound
Fizz returned to LVMH sales in Q1
Moët Hennessy Louis Vuitton (LVMH) saw its share price rise by 3% this week to around EUR91.5 (US$123.5), as Champagne and Cognac sales regained their fizz.
Thanks to fresh orders from distributors, the French luxury goods group reported a rebound in Champagne and Cognac sales for the first quarter, prompting many analysts on Tuesday (13 April) to upgrade 2010 and 2011 earnings forecasts for the firm by around 5%.
Like-for-like sales at the firm's wine & spirits division, Moët Hennessy, rose by 20% for the three months of 2010, to EUR635m, a sign that well-heeled buyers are once again opening their wallets.
This is, no doubt, heartening news to a sector hit particularly hard by the global economic malaise of last year.
Analysts at Oddo Securities told the Financial Times: “These figures bode well for the entire sector.”
Particularly encouraging was the turnaround in demand from the previously depressed markets of the US and Europe, making the dependence on Asia less heavy.
City analysts cited the firm’s "excellent" performance in Asia and the "strong rebound" in the US and Europe. LVMH’s delivery of underlying revenue growth of 13% smashed city expectations of about 7%, according to Reuters.
Karen Walker, senior managing director at Michel Dyens & Co, the investment banking firm specialising in luxury goods, told the FT: “Transactions are picking up. The luxury business is recovering, making M&A more attractive. In general, however, the most attractive targets do not want to sell.”
Melanie Flouquet, an analyst at JP Morgan Cazenove, told the Independent: "The biggest surprise stemmed from wines and spirits up 20% organically on easy comps but a much higher restocking than hoped for. This division is critical to further margin expansion at LVMH as it suffered most in '09 and is a meaningful contributor to group profit."
According to a report by US consultancy firm Bain & Co, with wealthy spenders now back in the shops, a lift in global luxury sales of between 5% and 10% is expected during the first half of the year compared with the same period in 2009.
However, the Moët & Chandon producer might not be cracking open the bubbly just yet.
The firm’s finance director Jean-Jacques Guiony said the group would continue to keep a tight grip on costs: “This bodes well for the rest of the year," he said, "yet we feel we should not at this point in the cycle, take a strong market recovery for granted.”
LVMH’s financial communications director reiterated this: "There are signs of improved demand from consumers but it is difficult to measure precisely ... it is too early to draw conclusions about the demand for the balance of the year.”
The caution is understandable given that last year was the worst for the industry after luxury sales fell by 8%, according to Bain & Co.
Most luxury goods companies have reported a drop in profits in their most recent sets of results - at LVMH, net profit fell by 13% to EUR1.8bn in 2009.
In a survey on wealthy individuals, Société Générale said yesterday that, while the very wealthy will continue to spend much the same amount as they did before the downturn, they are likely to be “less ostentatious in their consumption”. So, no complete return to the frivolous spending we saw before the economic downturn, at least not for the time being, it seems.
Dennis Weber, analyst at Evolution told the FT: “As people get richer, the memory of recession will probably be short and consumers are likely to spend again on bling-bling. However, at this stage it seems unlikely that we will see a return to the amazing spending levels of 2006-2008.”
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