A taste for luxury gives lift to LVMH shares

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LVMH shares jumped yesterday after the world’s biggest luxury group said fashion and leather revenue accelerated in late 2013 and predicted cognac sales in China would improve in the current quarter.

Bouncing from a seven-month low set the previous session, LVMH shares rose as much as 7 per cent, dragging up rivals such as Richemont, Burberry and Kering which gained between 2 and 4 per cent.

“Market fears of a weakening quarter-on-quarter (at LVMH) were alleviated and the diversity of the group’s portfolio continues to protect against macro (economic) headwinds,” Nomura analysts said.

Sales growth at LVMH’s fashion and leather goods unit, its biggest business, accelerated to 7 per cent in the quarter to December 31 from 3 per cent in the previous three months, beating analysts’ expectations of between 4 and 5 per cent.

The owner of Hennessy cognac and fashion brand Dior said late on Thursday that the profitability of Louis Vuitton, LVMH’s main cash cow, and which has a store in Leeds, remained unchanged in 2013 and that its upmarket repositioning progressed.

When LVMH published its mid-year figures in July, there was concern about Louis Vuitton losing momentum after having enjoyed stellar growth for years.

LVMH also said it expected cognac sales to end-customers or consumers in China to be “positive” in the first quarter, after having joined the ranks of rivals Diageo, Pernod Ricard and Remy Cointreau, which suffered from excessive stock and lower demand for premium spirits in China.

LVMH is trading on about 16 times this year’s earnings, which puts it roughly in line with the sector average but at a discount to smaller, more versatile groups.

“We view LVMH’s competitive position as very solid,” Morningstar analysts said in a note. “We believe the market is understating the long-term potential for LVMH’s large and diverse group of luxury brands.”

Richemont said earlier this month that the pace of sales growth remained steady in the last three months of 2013, rising 9 per cent at constant exchange rates as demand for its IWC watches, Cartier jewellery and other brands in its retail outlets more than offset a still subdued wholesale business.

Demand for coats and large leather bags helped Burberry top Christmas sales forecasts, meanwhile, the British luxury brand said earlier this month.