Inflation Isn’t Stopping U.S. Consumers From Buying Luxury Goods. LVMH Stock Could Rise Again.

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Shares of LVMH Moët Hennessy Louis Vuitton are lagging behind peers this year, as fears over the spread of Covid-19 in its key Chinese market and global inflation have taken a toll.

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The stock (ticker: MC.France) has sunk about 14%, to 628 euros ($677), year to date, compared with a 9.3% decline in the Amundi S&P Global Luxury

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exchange-traded fund (GLUX.France), which tracks the performance of the S&P Global Luxury index. Barron’s recommended the stock in December at €715.

But resilient first-quarter results suggests that the dip in the shares could be a rare buying opportunity. The French-listed company, which also has American depositary receipts, saw underlying group sales for the first quarter increase 23%, driven by its core fashion and leather division. That was better than the 18% consensus forecast. LVMH owns high-end brands such as Christian Dior, Louis Vuitton, Fendi, Bulgari, and Tiffany.

Overseas Markets Data

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Europe, Middle East, Africa and Asia

The Chinese market, which accounted for an estimated 12% of LVMH’s 2019 sales, remains a challenge. Sales growth in the Asia-Pacific region shrank to 8% in the first quarter from 16% in the fourth quarter.

But Jean-Jacques Guiony, LVMH’s finance chief, told analysts in a call that the impact of lockdowns in China to date in April were similar to the second half of March, but it was difficult to say how long they will affect the business.

Any direct commercial impact from Russia’s war in Ukraine is small. Louise Deglise-Favre, an apparel analyst at research firm GlobalData, has calculated that Russia and Ukraine accounted for only 2% of LVMH apparel sales in 2020.

However, the luxury-goods giant won’t be immune from the knock-on effects of rising energy prices that are fueling global inflation and a cost-of-living crisis.

That said, demand for luxury goods in the US—another crucial market for LVMH, accounting for about 25% of annual sales—appears to be defying inflation. That strong demand comes even as the US consumer price index rose in March at the fastest annual pace since the start of the 1980s.

In 2022’s first quarter, LVMH’s US sales increased 26% from the same period the year before. Chiara Battistini, an analyst at JP Morgan, has rated the stock Overweight, with a price target of €780 by December 2023. “LVMH has consistently proved over the years to be an outperformer in bad and in good times,” she wrote in an April note.

The company said in its April trading statement that “in the current geopolitical context and in light of the ongoing impact of the pandemic, LVMH remains both vigilant and confident at the beginning of this year.”

Paris-based LVMH has a market value of €317 billion and employs about 163,000 people. It trades on a multiple of 23.1 times this year’s expected earnings. It posted net profit of €12.6 billion in 2021, up from €4.9 billion the year before. Group revenue reached €64.2 billion in 2021, up from €44.6 billion in 2020.

Its star brands, Louis Vuitton and Dior, were the big performers in the first quarter, helping to drive 30% sales growth from its fashion and leather-goods division. Perfume and cosmetics sales were up 17% in the quarter, while watch and jewelry revenue increased 19%.

Production of special-edition lines across its brands and effective social-media marketing could also lift the stock, as will long-term partnerships with celebrities, including its 50% stake in Jay-Z’s Champagne brand and a stake in British designer Phoebe Philo’s new company.

That will allow the brands to stay relevant among younger consumers by using “the rarity factor of limited-edition items,” says GlobalData’s Deglise-Favre.

Write to Rupert Steiner at [email protected]


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