Shares in luxury giant LVMH (MC) are up 10% this morning on higher-than-expected earnings, amid prior concerns of a slowdown in luxury spending across Europe and China.
On Thursday night, the world’s largest luxury brands business, which owns Givenchy, Louis Vuitton, and Sephora cosmetics, said its full-year 2023 sales had reached €86.15 billion (£73.5 billion) – above market consensus. It will now increase its dividend.
Investors were particularly pleased by the performance of LMVH’s luxury goods and clothing brands, which includes luxury handbags and “ready-to-wear” clothing, whose revenue topped €11.3 billion in the final quarter of 2023, a 9% increase. Morningstar equity analyst Jelena Soklova had originally expected the division to grow 7%.
The company did, however, post slowing revenue growth for the division across 2023 when compared to the year before.
At the time of writing shares in the Paris-headquartered company are up 10.8%, fuelling optimism the luxury sector is proving more resilient than investors had originally feared.
Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund says the company’s performance included pleasant surprises.
“LVMH delivered as well as shareholders could have expected. The main feature is that organic growth in the fourth quarter at +10% has not deteriorated. It has been surprisingly strong in Japan, with the rest of Asia and the US also accelerating,” he says.
“Most importantly, organic growth has held up at +9% in Fashion & Leather Goods, by far its largest business group. Structurally, LVMH’s largest brands in this category have taken market share. Overall it is a comforting result in an uncertain environment.”
The news has had a positive effect on UK-listed luxury brands, including Burberry, which is up 2.8% at the time of writing, despite its earlier profit warning. Diageo, which is due to report its own earnings next week, is also higher at 4%, making it the top performer on the FTSE 100 today.
Fair Value Estimate for LVMH
Morningstar analyst Jelena Sokolova recently upgraded her Fair Value Estimate (FVE) for LVMH to €670 from €640 per share, to incorporate the time value of money “offset by slightly more pessimistic expectations for 2023 sales and profits.”
“We expect Louis Vuitton brand to grow 3% faster than the luxury leather goods supported by an outsize marketing budget, brand recognition, and pricing power”, she wrote in a report dated January 8.
Key Morningstar Metrics
• Fair Value Estimate: €670;
• Current Price: €661;
• Morningstar Rating: ★★★;
• Morningstar Economic Moat Rating: Wide;
• Morningstar Uncertainty Rating: Medium.
