LVMH Grows 16%, But Disappoints

LVMH´s sales were €8.58 billion in the third quarter, 16% more than the same period last year. This increase is mainly due to two aspects: organic growth, which contributed an increase of 7%, and the effect of the fall of the euro against other currencies, which contributed the 9 percentage points remaining.

Regarding the first nine months of the year, revenues increased by 18% to almost €25.3 billion. By businesses, watches and jewelry registered the fastest growing (22%), followed by the division of beverages (19%) and perfumery/cosmetics and leather goods (16% each). By region, it performed well in Europe, while Asia gave clear signs of weakness, as expected. US, which had shown some strength in the first half, has also shown some slowdown in the last three months.

The investor´s disappointment, which has caused a cold welcome in the stock market, is the evolution of the fashion and leather goods division, which is the flagship of the group with Louis Vuitton. This business got an organic growth (excluding the effect of foreign exchange) of 3%, half what experts had expected. This division means the third part of the group’s revenues and more than half of Ebitda.

Although the behavior of business remains more or less stable, it is slightly worrying the global trend. The luxury business in Asia continues to decline and no other geographical areas currently likely to assume leadership of the growth. The high growth rates, close to 20%, is mainly due to the effect of the devaluation of the euro, an impact that will be greatly reduced from the current quarter as it was twelve months ago when he produced most of the fall value of the European currency.

Anti-corruption measures of the Chinese government, the economic slowdown and the devaluation of the Chinese currency are causing a serious problem to the luxury sector companies. LVMH, which is a perfect barometer of the situation, is a reflection of this, with significant declines in sales of fashion and leather goods, beverages and other luxury products such as watches and jewelry. US also shows a weakness for the appreciation of the dollar and uncertainty about the future of the economy.

In this context, only Europe is clearly pulling the cart, but it has some limitations for the future, such as the fact that it is a mature market and because the weakness of their currency is attracting many tourists who buy luxury products in its shops and airports. With this scenario, it is not surprising that the market price of LVMH received these results with declines of up to 4% (taking out more than €3.5 billion of its market capitalization). The news is also affecting other groups of luxury. Kering, another big luxury conglomerates, is also losing important positions in the stock market (4%).