PARIS — It was the day that LVMH Moët Hennessy Louis Vuitton’s stock price hit an all-time high and the group reported record annual results after the market close.
Bernard Arnault, chairman and chief executive officer of the luxury conglomerate, should have been popping the Champagne. Instead, he startled analysts by warning that the luxury sector could be headed for its biggest correction since the 2008 collapse of Lehman Brothers.
At a press conference held at LVMH headquarters on Avenue Montaigne, Arnault noted that in 2016, the group’s revenues broke through the barrier of 37 billion euros, or $41 billion, for the first time. Profit from recurring operations smashed through the threshold of 7 billion euros, or $7.8 billion.
Meanwhile, its bellwether fashion and leather goods division — home to brands including Louis Vuitton, Fendi, Céline and Berluti — recorded organic growth of 9 percent in the fourth quarter, sharply beating a consensus estimate of 5 percent.
“Despite this and despite the fact that the signals have been fairly positive since the start of the year, I am extremely cautious for 2017,” the luxury titan said. “In my opinion, it’s always when things are going well that something unexpected happens.”
Arnault noted that the global economy has not experienced a major shock since 2008. “In a 10-year period, there are usually eight good years and two not-so-good years, maybe even one very bad year. We are reaching the end of a 10-year cycle,” he cautioned.
Among the risk factors, Arnault cited record-low interest rates; “irrationally exuberant” stock markets, borrowing a phrase coined by former Fed chairman Alan Greenspan; geopolitical uncertainty, with potential conflicts brewing in the areas of trade, customs and currencies, and continued low growth in Europe.
While the first half should be relatively positive, thanks to easy comparisons with the same period last year, the situation could rapidly worsen, he warned. “We should expect much more difficult conditions in the second half of the year,” he said, adding that on the bright side an economic downturn could provide opportunities for gaining market share or making acquisitions.
Arnault’s comments come after a positive start to the luxury earnings season, with Compagnie Financière Richemont reporting a 5.7 percent increase in revenues in its fiscal third quarter, while Burberry posted a 3 percent rise in like-for-like sales in the three months to Dec. 31.
High-single-digit growth in nearly all business divisions bolstered LVMH’s fourth-quarter revenue by 8.7 percent to 11.27 billion euros, or $11.95 billion. Organic growth for the three months to Dec. 31 was 8 percent.
The group said the American market remains “on a good track” as does Europe. Asia, excluding Japan, continued its “good momentum.” In the Americas and Europe, LVMH is bucking the trends of other luxury goods groups, which faced major headwinds in both markets last year.
Sales in LVMH’s key fashion and leather goods division advanced 8.2 percent to 3.78 billion euros, or $4.01 billion, in the period. All figures have been converted at current exchange rates for the periods to which they refer.
The only division that notched double-digit organic growth in the quarter was selective retailing, which was up 11 percent. In the full year, revenue climbed 5.4 percent to 37.60 billion euros, or $39.86 billion, with organic revenue growth at 6 percent.
Analysts welcomed the LVMH results — the company’s shares closed down 0.5 percent at 190.45 euros, or $203.28, on the Paris stock exchange on Thursday after hitting an intraday peak of 193.35 euros, or $206.38, an all-time high for the stock.
Rogerio Fujimori, an analyst at RBC Capital Markets, gave the group’s shares an “outperform” rating with a price target of 195 euros, or $208. “Overall, we believe these results demonstrate LVMH’s superior execution across categories and ability to take market share, as well as accelerating Louis Vuitton brand momentum,” he said.
Citi reiterated its buy rating, with a target price of 197 euros, or $210.
“We believe Vuitton’s changing product offering, strong innovation/creativity, unique distribution and pricing model, unrivaled communication and highly efficient supply chain remain key competitive advantages still leading to some of the highest operating margins and return on capital employed in the industry,” Citi analyst Thomas Chauvet said in a research note.
Arnault declined to break out revenues for the cash-cow Vuitton brand, but said it registered an “excellent” performance in 2016, with an acceleration in the second half. The brand’s recently unveiled men’s collaboration with New York streetwear brand Supreme generated so much traffic that its web site crashed.
The executive said the brand was growing so fast, it only has enough stock to cover one month’s demand. “That is a remarkable performance, but it also means we can’t expect huge growth, because we are limited by production,” he said.
Arnault said earlier this month after a meeting with then-President-elect Donald Trump that Vuitton may expand its existing factory in San Dimas, Calif., and plans to build a second one in Texas or Carolina to cater to the U.S. market, which is the group’s largest.
He said Trump’s planned economic policies, including tax cuts and infrastructure spending, were generally positive for companies in the United States, but it remained to be seen how the rest of the world would be impacted.
Among its other fashion brands, revenues at Fendi surpassed the symbolic level of one billion euros, or $1.11 billion, and Marc Jacobs continued to weigh on results. Overall digital revenues reached 2 billion euros, or $2.2 billion, last year, with Citi’s Chauvet estimating that Sephora accounted for half that sum.
Arnault declined to comment on reports that LVMH is poised to acquire between 5 and 10 percent of Marcolin as part of an agreement for the Italian eyewear firm to produce sunglasses for several of its brands. “At any rate, whatever we do, it will be very small,” he said.
LVMH’s free cash flow rose 8 percent to a record 3.97 billion euros, or $4.39 billion, in 2016. The group reduced its debt to 3.26 billion euros, or $3.61 billion, from 4.23 billion euros, or $4.69 billion, a year earlier. It plans to pay a dividend of 4 euros, or $4.27, for 2016, up 13 percent versus 2015.