Fashion drives LVMH growth beyond expectations
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Fashion drives LVMH growth beyond expectations

The world’s largest luxury company, LVMH, has reported earnings for the first half of 2019 – and for investors curious as to what momentum in the sector looks like, the results paint an optimistic picture. Taken together with also-positive results from Italian luxury outerwear-maker Moncler (see the third story on this newsfeed) this undoubtedly constitutes a great kick-off to luxury’s latest earnings season.

LVMH’s share price has appreciated by 49% so far this year

LVMH July 26

Source: Yahoo Finance

LVMH’s share price is near record highs for the company – but Bernstein luxury analyst Luca Solca thinks it should go higher on the back of these results. The reason? Because LVMH answered what he called a “million-dollar question” – can the company exceed analysts’ expectations for sales in its vitally important fashion and leather goods category? The answer was a resounding “yes”!

Fashion and luxury goods account for around half of LVMH’s business – so when it reported a sales rise of 18% year on year (higher than the already-optimistic 15% touted by Wall Street), it was very good news indeed. For the first half of the year, the company said revenues came in at 25.1 billion euros. Sales in the fashion and luxury goods category hit 10.4 billion euros.

LVMH saw success worldwide. The “yellow vest” protestors that stymied business in central Paris petered out during the second quarter; unrest in Hong Kong has yet to affect LVMH’s business there. However, chief financial officer Jean-Jacques Guiony was quick to point out that investors shouldn’t get too complacent – there is still time for geopolitical turmoil to cool global luxury’s jets.

Moving on from that, Guinoy struck a more positive tone, noting that the major driver of LVMH’s success was strong brands. Dior, for example, saw “exceptional” growth greater than the overall company’s 18% (Guinoy declined to break down the actual figures for individual brands).

Guinoy also took a moment to discuss the future, noting that spending was up (intentionally so): “Investment comes when business is good... to reinforce brands to make them more resilient if the global environment becomes more difficult.”

One area, he said, where LVMH was seeking to “reinforce” the business as a whole was in sustainability (see the recent stake in Stella McCartney’s eponymous and eco-friendly brand). He explained this move: “Sustainability is a very important factor, and we are working a lot on that. As far as the new generation is concerned, it ranks high in their priorities and how they look at brands.”

Disclosure

Dominion holds LVMH in its Global Trends Luxury Fund.


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