Supported by LVMH Moët Hennessy Louis Vuitton’s recent decision to bring Christian Dior Couture into the company, along with a first quarter that saw sales at the conglomerate grow by 15 percent, RBC Capital Markets lifted by 3 percent its full-year earnings before interest and taxes forecast for LVMH.
Being fully under the LVMH umbrella will see Dior’s fashion and fragrance activities reunite and make Dior the second-largest brand in the group’s fashion division, behind Louis Vuitton and ahead of Fendi.
RBC also expects LVMH shares to hit 245 euros this year. LVMH is currently trading around 230 euros.
This is the fourth time this year the bank has upgraded LVMH, but RBC said it’s “gaining market share across the board and we see material positive operating leverage in the [fashion and leather-goods] division given strong [like-for-like] retail momentum for Louis Vuitton.”
LVMH is exposed to some risks, including a slowdown in share gains for Sephora, which has been seeing double-digit growth for a few years, possible travel disruption for Chinese shoppers and additional costs for turnaround efforts at Marc Jacobs.
As for Kering, RBC now expects a 12 percent increase in EBIT over the year and set its earnings forecast at 290 euros per share. Kering is currently trading around 284.70 euros.
RBC pointed to Kering’s “impressive” first quarter led by Gucci, which saw organic sales at the house rise by just over 48 percent, its strongest sales performance in two decades, when Tom Ford was at the design helm.
Discussing the group’s results last month, Kering’s chief executive officer François-Henri Pinault said Gucci’s outperformance would continue and coupled with strong growth at Saint Laurent, showed the group was on track to outperform the broader luxury market.
The bank also has solid expectations for Hermès, which reported better-than-expected revenues for the first quarter due in large part to increase consumer demand in Asia, but only lifted its EBIT forecast by 1 percent and said its “fundamental strengths” seem to already be baked into its stock, which is trading at 447 euros.
“The recent news that the Arnault Group plans to use its Hermès stake as acquisition currency to buy Christian Dior shares may also put a lid on the stock for now,” RBC said.
RBC also noted that LVMH’s leveraging of Hermès could lead to renewed takeover speculation around the brand, but didn’t speculate further.
But HSBC Bank took the notion of luxury mergers further in an April report, saying LVMH, Coach and Kering “in that order” are the most likely to be active in acquiring business this year.
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