PARIS — Shares in LVMH Moët Hennessy Louis Vuitton flirted with record highs on Tuesday after the company reported better-than-expected third-quarter results, but the company stuck to its cautious stance for the year-end, warning that currency variations would weigh on top- and bottom-line growth.
The stock closed up 2.2 percent at 237.40 euros on the Paris Stock Exchange, hitting an intraday high of 238.85 euros — close to the record of 239.65 euros set in May. While analysts were upbeat about LVMH’s prospects in the fourth quarter, some cautioned its performance could not be extrapolated to the rest of the sector.
Chief financial officer Jean-Jacques Guiony said while the third-quarter figures were fractionally better than anticipated, the challenges that LVMH chairman and chief executive officer Bernard Arnault identified at the beginning of the year were still there and would play against it in the fourth quarter.
“The real tough comparison base starts in September and in Q4,” he said on a conference call, noting that the last three months of 2016 saw both a sharp increase in demand from Chinese customers and a four-point improvement in the fashion and leather goods division compared to the previous quarter.
Guiony said business in September was “in line with the rest of the quarter,” but declined to comment on trading conditions during the recent Golden Week in China.
In a research note, Citi said LVMH appeared to be overly cautious. “While we appreciate management’s desire to communicate prudence and balance, we think recent reassuring Golden Week trends and brand-specific momentum at Vuitton indicate the likelihood of a strong finish to the year for the group,” it said.
Guiony said the conglomerate has restricted the supply of some of its most popular clothing and accessories styles, though he did not specify which products were concerned.
“We have voluntarily limited the production and therefore the business in some bestsellers, the objective being twofold: one, to allow production time to build up inventories to meet year-end peak season, and secondly to avoid overexposure of some products that would become too widely distributed, which could be long-term an issue for the brands,” he explained.
He added that margins at the cash-cow Vuitton brand were at their peak. “We are extremely pleased with LV margins. They are unparalleled in the industry. The main objective is certainly not to increase them, but more to keep them where they are, which is sufficient to create a lot of value for the shareholders,” Guiony said.
The executive also indicated that Vuitton was moving forward with its omnichannel strategy.
“We are not allowing full omnichannel features in all our stores at Vuitton, but in a big chunk of them, so it’s progressing as expected and within a few months, if not years — but probably a few months or few quarters — Vuitton should be in a position to really define a full omnichannel proposition to its clients in all its stores,” he predicted.
Guiony declined to give a specific target for the group’s 24 Sèvres e-commerce site, launched in June, beyond saying he was confident in its prospects. “We are lagging behind the main players in this particular business. It will take us a while to bridge the gap,” he said.
“We have a platform that works well, we have an unparalleled lineup of brands. We think we have a strong competitive advantage, but it’s not a business that you develop in 10 minutes,” Guiony added. “It will be loss-making during a few years.”
The key fashion and leather goods division clocked 13 percent growth on an organic basis for the quarter, as reported. It recorded a negative currency impact of 5 percent during the period and a positive structural impact of 19 percent, linked to the integration of Christian Dior Couture, said Chris Hollis, head of financial communications at LVMH.
German luggage maker Rimowa, which has been integrated since January, is facing an inventory overhang that will likely weigh on sell-in numbers for several quarters — “nothing dramatic, given the relative size of Rimowa, but don’t expect fantastic positive numbers for Rimowa before a few quarters,” Guiony cautioned.
Perfumes and cosmetics delivered a stellar quarter, with organic sales growth of 17 percent, which Credit Suisse billed as the highest in a decade.
Guiony said this was due to a strong performance by the division’s leading brands — Christian Dior, Givenchy, Guerlain and Benefit — and the sell-in factor for the launch of Fenty Beauty by Rihanna, available exclusively at Sephora since Sept. 8. “The sellout numbers for Fenty Beauty are extremely strong and very encouraging,” he added.
Analysts were divided about the implications for LVMH’s rivals. Kering is scheduled to publish third-quarter sales on Oct. 24, while Hermès International reports on Nov. 8.
“We believe that no slowdown for the flagship brand of the sector sends a positive signal for the rest of the third-quarter reporting season,” said Credit Suisse.
However, Bernstein cautioned that it wasn’t good news for everyone. “As the industry settles to its new growth norms, winners and losers will become more apparent and the stellar performance of LVMH cannot be extrapolated to other luxury players,” it said.