PARIS — The Louis Vuitton brand should show “superior resilience” during the current economic downturn, allowing parent LVMH Moët Hennessy Louis Vuitton to be “one of the few” luxury players to report positive earnings growth next year.
So says a report released Wednesday by HSBC luxury analyst Antoine Belge, who forecasts LVMH’s earnings before interest and taxes to rise 6 percent next year, also bolstered by its cognac division and positive shifts in currency. Vuitton should account for 47 percent of group EBIT this year, with cognac kicking in about 12 percent, he notes.
HSBC cautions that luxury goods executives site a “total absence of visibility” on how the financial crisis will play out. “Nevertheless, we cannot ignore the fact that the Louis Vuitton brand did not report any year of negative organic sales growth in the 1990-2007 period,” Belge writes.
During a field trip to China last month, LVMH management told analysts that sales of Vuitton in that country grew by more than 30 percent in October and that the brand is also outpacing peers in U.S. department stores.
By contrast, HSBC is more bearish on watch players, including Compagnie Financière Richemont, Swatch Group and Bulgari, forecasting EBIT declines of 14 to 20 percent in fiscal 2009.
Downside risks specific to LVMH include “failure to develop or turn around the group’s second-tier brands,” which include Givenchy, Celine and Kenzo, and a further deterioration of sales in Japan, Belge noted.
The bank maintains an overweight rating on LVMH, while lowering its price target to 60 euros, or $76.26 at current exchange, from 86 euros, or $109.31. Shares in LVMH recently have been trading in the 43 euro, or $54.65, range.
HSBC also sees upside to shares in Christian Dior SA, given that it is the parent of LVMH and trades on the conglomerate’s strong fundamentals. However, the Dior fashion house is not expected to be a booster, given slowing sales in 2008 in the U.S. and Japan.
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