(Bloomberg) — LVMH noted that it is currently seeing a negative impact on demand for luxury products due to lockdowns in China, a possible early warning for the rest of the industry.
In a call on Tuesday, CFO Jean-Jacques Guiony told analysts that he is confident of medium- and long-term demand in China once the situation returns to normal. He added that the Chinese authorities have demonstrated their ability to quickly contain the pandemic before, especially in 2020, and he does not think the current situation is worse than then. He predicted that lockdowns in Shanghai will be relaxed “relatively soon.”
Earlier, LVMH reported that first-quarter sales increased 23% on an organic basis to 18 billion euros (US$19.5 billion). Analysts projected a profit of 17%. Sales were driven by its largest unit, fashion and leather goods, the Paris-based company said in a statement Tuesday.
Led by billionaire founder Bernard Arnault, LVMH is the first European luxury goods manufacturer to disclose the period's revenue, so its results may indicate how other companies have done. LVMH's organic revenues in the United States and Europe grew 26% and 45%, respectively, in the quarter. That compares to an 8% gain for Asia, excluding Japan, a region that accounted for 37% of revenues. Meanwhile, the US generated about a quarter of the company's revenue.
The wine and spirits unit was the only division that did not grow above double digits due to supply constraints, in particular for its Hennessy cognac, whose volume decreased by 18% over the period. LVMH partially offset the drop in volume with price increases, said Chris Hollis, who oversees investor relations, during the call. Hollis cautioned against extrapolating the moderate performance of this unit, given that the first quarter tends to be volatile and a less important period after the holiday shopping season.
The luxury industry has been relying on price increases to offset inflation. Louis Vuitton raised prices by around 6% in the first quarter, according to Stifel estimates. Guiony said that most of the group's brands have increased prices “significantly” over the period.
Stores in Russia
LVMH closed its stores in Russia on March 6 following the invasion of Ukraine, a conflict that could hit the “welfare factor” of consumers when it comes to luxury shopping, according to Telsey Advisory Group. It is estimated that Russian citizens account for less than 1.5% of LVMH sales, according to Morgan Stanley.
The revenue of LVMH's leather and fashion goods unit, which houses Louis Vuitton and Dior, skyrocketed 30%, beating analysts' forecast of a 23% profit.
Hermès Internacional, the manufacturer of the Birkin bag, reports quarterly sales on Thursday before the opening of markets in Paris.
Original Note:
LVMH Says China's Lockdowns Are Having Negative Impact on Demand
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