Small Leather Goods Stoke Louis Vuitton’s ‘Speedy’ Recovery

PARIS — The pace of Louis Vuitton’s recent recovery takes after one of its signature bags: speedy.

Indeed, the cash-cow brand of luxury giant LVMH Moët Hennessy Louis Vuitton should post organic revenue growth of 5 to 6 percent in the second half of this year, and into 2017 and 2018.

That’s the prediction of HSBC, which lauds Vuitton for beefing up its entry-level offerings in handbags and small leather goods.

“Together with Gucci, Vuitton has been the best soft luxury brand in terms of addressing the needs of aspirational customers — notably younger ones,” luxury analysts Antoine Belge and Erwan Rambourg wrote in a research note Monday.

They noted that the brand is benefiting “from improved luxury market conditions as well as brand-specific initiatives.” These underscored Vuitton’s 7 percent gain in organic revenues gain in the third quarter.

Vuitton “anticipated the need to move from a retail expansion focus to a product-driven strategy” hinged on more expensive bags, reinvented products in its signature monogram canvas, and small leather goods, now growing at a double-digit pace.

Vuitton, which accounts for an estimated 49 percent of LVMH’s EBIT, should contribute to a “slight operating leverage.”

Champagne, cognac, Sephora and perfumes and cosmetics remain the other “main earnings growth drivers,” HSBC said.

The bank has a “buy” rating on the stock and a price target of 207 euros, or $223.50 at current exchange. Shares in LVMH gained 1.2 percent on Monday to close at 171.10 euros on the Paris Bourse.

Calling LVMH a “more disciplined company,” HSBC applauded the recent disposal of Donna Karan International to G-III Apparel Group, and the acquisition of fast-growing luggage maker Rimowa.

It forecasts that share buybacks “should become a recurrent feature in years when no significant M&A opportunity arises. All of this, together with the…pickup in earnings momentum, should in our view lead to a further re-rating in LVMH’s valuation multiple.”

HSBC predicts that Chinese consumers will continue to account for about 30 percent of Vuitton’s sales, “and to a lesser extent by U.S. consumers.”

“The average LV customer is not a high net-worth individual but someone earning $35,000 a year,” HSBC noted.