EUR 850.00 For Business Accounts Only

Morningstar | LVMH's Results Solid With Strong Fashion and Leather Goods Division; Maintaining FVE

We don’t expect significant changes to our fair value estimate of EUR 231 per share for wide-moat LVMH after the company reported full-year results broadly in line with our expectations. Revenue came a little lighter and profits slightly stronger than we expected.

In the fourth quarter, organic growth was 9% versus 11% over the first nine months of the year, with the slight deceleration mainly driven by the U.S. market (5% growth in the quarter versus 10% over the first nine months). Selective retailing slowed in the quarter to 3% growth (versus 8% in the first nine months) with some weakening of Sephora in the United States and slowdown at DFS. Wines and spirits saw a slowdown to 2% in the quarter (7% in the first nine months), remaining capacity-constrained. Watches and jewellery slowed to 7% growth (14% in the first nine months), a trend also observed by peers Tiffany and Richemont. As a positive surprise, the main fashion and leather goods division's growth accelerated in the quarter to 17% (versus 14% in the first nine months) with continuing strength of the flagship brand Louis Vuitton and strong Dior performance.

Like its peers, LVMH saw repatriation of Chinese demand but noted no change in demand trends from this consumer cluster for the main brands, such as Louis Vuitton and Dior, from the third to fourth quarter. The company also saw no slowdown in American buyers of its fashion and leather goods products, unlike Tiffany and Burberry, which noted a slowdown in this customer segment in the recent months.

Profit improvement was slightly stronger than we expected, with a stronger gross margin helped by good capacity utilization, currency hedging gains, and pricing power. Operating costs grew less than sales, with moderate retail expansion (commercial lease costs down year on year), but advertising and promotional costs grew 14% (versus 10% sales growth) as the company took advantage of the positive demand environment to boost brand visibility.

The management was cautiously optimistic about demand in 2019, having said that the year had a good start. We continue to forecast mid-single-digit revenue growth for the group (slightly higher than our 4% industry growth forecast) over the next 10 years, driven by superior pricing power and stronger growth of the smaller brands. We continue to factor in a recessionary downturn in our long-term forecast.