Louis Vuitton Place Vendôme Flagship

PARIS  Luxury titan Bernard Arnault is never one to throw caution to the wind.

On the contrary, the group his family controls, LVMH Moët Hennessy Louis Vuitton, reiterated that the sector should brace for a potentially tougher business environment ahead, even as it posted a 13.6 percent rise in third-quarter sales.

Sales in the three-month period totaled 10.38 billion euros, up 12 percent on an organic basis as brisk business in most divisions helped offset a drag from unfavorable exchange rates and slower growth in its wine and spirits activities. The sales rise handily beat consensus estimates that pegged the quarterly organic growth at 9.1 percent, according to Bernstein analysts who called the actual figure a “great performance once again.”

But the quarter was marked by a relatively easy comparable figure from the previous year and will “get tougher from here,” Bernstein said in a note to clients just after the sales release.

So far this year, LVMH has relayed a message of caution despite strong sales increases, warning against projecting the growth too far into the future. Luxury goods companies had been hit hard more than a year ago when a series of terrorist attacks deterred tourists, a key source of business for the industry. The weaker performance made for favorable comparisons once business picked up.

In its third-quarter release Monday, LVMH pointed to exchange rates and the global political environment as potentially complicating the outlook for high-end goods.

“In an uncertain geopolitical and currency environment, LVMH will continue to be vigilant,” the company said. It is to host a conference call Tuesday to elaborate on the numbers.

Currency rates had a negative impact of 5 percent over the first nine months, the company said.

Industry observers are carefully watching to see how much the strong euro will weigh on the sector. For luxury companies based in Europe, and incurring costs in euros, the strengthening currency weighs on margins. A strong euro also dissuades tourists from traveling to Europe, thus lowering the numbers of people likely to splash out on pricy goods there.

Last month, Compagnie Financière Richemont provided some initial signs of how the euro’s strength is affecting business for high-end goods. In its April to August trading update, the Swiss-based company flagged an “emerging negative impact of a strong euro on tourist spending” in continental Europe, where sales grew 3 percent, significantly lower than the 12 percent growth, at constant rates, over the five-month period.

French luxury peer Kering reports third-quarter sales on Oct. 24; Hermès International reports on Nov. 8.

Analysts say not all luxury goods companies are equally equipped to deal with currency headwinds.

In a recent research note, Bernstein signaled some will likely experience pressure on margins of earnings before interest and taxes for this year and next year, noting that companies like LVMH and Hermès could draw on strong brand momentum that provides pricing power.

“On the other hand, given the current weaker competitive positioning of Prada and Ferragamo, we see limited scope for these brands to increase pricing,” Bernstein added.

Luca Solca, luxury analyst at Exane BNP Paribas, said LVMH’s third-quarter sales release bolstered the case for LVMH’s position as one of the stronger players in the sector.

“The release confirms our expectations what ‘winners will continue to win’ in soft luxury  with LVMH and Kering at the forefront,” noted Solca.

Solca added that he thinks the company “remains a high quality growth story” citing the integration of Christian Dior, rationalization at Marc Jacobs, traction of smaller brands like the shoemaker Berluti and the termination of a loss-making duty-free business in Hong Kong.

The largest division, fashion and leather goods, home to its star brand Louis Vuitton, clocked 13 percent growth on an organic basis for the quarter compared to the same period last year. LVMH highlighted the brand’s first smartwatch as well as efforts to improve the quality of its distribution network as contributing to Vuitton’s performance over the first nine months. The label just opened a new Paris flagship on the Place Vendôme in Paris.

Perfumes and cosmetics grew the fastest, up 17 percent on an organic basis over the quarter.

The company said supply constraints were the reason for a weaker performance from its wine and spirits division, which lagged other divisions with 4 percent organic growth over the quarter.

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