LVMH isn’t feeling pain of war, inflation

LVMH Moet Hennessy Louis Vuitton SE has kicked off the luxury reporting season in style.
The company said that its fashion and leather goods division recorded a 30% increase in sales excluding currency movements and mergers and acquisitions in the three months to March 31. Analysts had expected a 23% gain.
Although the shares had fallen 13% between the start of the year and Tuesday’s close, they jumped 2.7% in pre-market trading. But investors should be cautious. Despite the confident performance, the risks are rising for the bling behemoths.
Recent lockdowns in the city of Shanghai, which is the biggest contributor to Chinese luxury sales, are a worry for the sector. And although LVMH’s sales in China are still expanding, Chinese consumers are traveling less, which is having an impact on its sales.
The luxury giant doesn’t appear perturbed. Lockdowns were no worse than in 2020, Chief Financial Officer Jean-Jacques Guiony said. While it’s difficult to say how long restrictions will last, he said he expects the current situation to be a short-term phenomenon. In the medium to long-term, demand should return to previous levels. “We are reasonably hopeful that this should be a moment in the history of luxury in China, and not more than that,” he told investors and analysts.
Yet there is a danger that the restrictions linger and that this weighs on the company’s full-year performance. LVMH reported that sales in Europe had held up despite the war in Ukraine. LVMH closed its stores in Russia. But it’s worth remembering that these first-quarter results are being compared with those from the same period a year ago, when stores were closed. Yes, expensive handbags and Swiss watches can be seen as stores of value in troubled times, but there’s always the possibility that their appeal wanes over uncertainties.

—Bloomberg