LVMH [EPA:MC] has started the year strong with its share price up more than 15% year-to-date, as it has managed to ride out the global economic downturn that has affected many other businesses.
The luxury goods giant just announced it results, showing a 9% increase in sales in the fourth quarter, reaching EUR22.7bn (GBP19.9bn), although sales in China were down.
Over the year, LVMH recorded EUR79.2bn in revenue and EUR21.1bn in profit from recurring operations, both of which were up 23%, benefiting from strong demand in Europe, the United States and Japan.
Confident but vigilant
The group raised its annual dividend by 20% and owner Bernard Arnault said they are approaching 2023: “with confidence but remain vigilant due to current uncertainties.”
“LVMH is the jewel in luxury’s crown. Bernard Arnault’s empire has seen its valuation swell over 200% in the last five years, and momentum doesn’t appear to be running out,” commented Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
The group’s fashion and leather goods division, featuring brands like Louis Vuitton and Christian Dior, in particular saw a 20% increase in revenue, which Lund-Yates put down to its highly dependable customer base.
“The ultra-wealthy aren’t put off by economic ups and downs, and inflation is unlikely to dent their spending habits. The margins up for grabs on high-end fashion and accessories is therefore eyewatering and so the virtuous cycle of design, marketing and sales can continue. News that the USA’s economy slowed less than expected in the last quarter also means more shoppers are due to be slinging Louis Vuitton bags over their shoulders than expected,” she added.
With a market capitalisation of over EUR400bn, LVMH is Europe’s most valuable company and in December, Arnault became the world’s richest person.
Wealthy clientele
Although many retail businesses have been suffering recently, driven by economic hardships leading people to cut discretionary spending, the luxury goods market has been less affected as it targets already wealthy customers.
China’s reopening after its zero-Covid policy should further support businesses in this area. According to a recent report from Bain & Co, the luxury market also appears to be better equipped to cope with a global recession.
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Depending on the strength of the economic recovery in China and the ability of the US and Europe to withstand headwinds, analysts at Bain expect the luxury goods market to grow sales between 3% and 5% in a base case or up to 6% to 8% in a more positive case.
“The prospects for personal luxury goods out to 2030 are positive. Solid fundamentals are set to boost the market’s value to between EUR540bn and EUR580bn by the end of the present decade, from an estimated EUR353bn in 2022,” Bain noted.
Luca Solca, analyst at Bernstein, reiterated his buy rating on the stock with a target price of EUR902. Currently, LVMH is trading at EUR801.6, up 223% over five years.
Although the luxury market and LVMH in particular is poised for continued growth, not just due to Chinese consumers resuming their spending but also by the further digitalisation of the industry and the introduction of new types of activities, such as sales in the metaverse, there are concerns that the already high valuation of the company could be impacted by a correction.
