Much Growth in Luxury Handbags as LVMH Makes Gains

LVMH shares soared after its sales of luxury goods beat analyst estimates, proving its resilience to an industry slowdown and giving a boost to struggling competitors.

The stock closed up 4.5 percent to 164. 10 euros Tuesday in Paris, after gaining as much as 5.8 percent, the highest price since the Nov. 13 Paris terrorist attacks that provoked a drop in tourism and demand for luxury goods. Third-quarter sales rose 6 percent on an organic basis, beating the 4 percent expected by analysts. Increased demand for leather goods and fragrances fueled growth, with Asia improving significantly, the company said.

LVMH led gains in stocks such as Burberry Group Plc and Kering SA, the owner of Gucci. The luxury industry had been grappling with weaker demand in Asia, exacerbated by a slowdown in tourism to Europe following terrorist attacks. Last month Richemont, the maker of Cartier, warned that first-half earnings fell about 45 percent amid a slump in demand for Swiss watches, and Hermes International SCA abandonded a long-term sales growth target.

“The strong performance of the fashion and leather goods division and commentary about improvement in Asia should be taken positively for the soft luxury industry as a whole,” Zuzanna Pusz, an analyst at Berenberg, wrote in a note. 

For a Bloomberg Intelligence analysis of LVMH’s results, click here

LVMH said better results in Asia boosted sales growth at its biggest segment, fashion and leather goods, to 5 percent, the fastest pace in more than a year. Revenue from perfumes and cosmetics also bested estimates as Louis Vuitton introduced seven namesake fragrances.

In mainland China, sales picked up from mid-single-digit percentage growth in the first half to mid-teens in the third quarter, Chief Financial Officer Jean-Jacques Guiony said on a conference call. Chinese nationals were very active buyers both in and outside China, but it wasn’t clear whether this trend would continue, he said. Performance in Hong Kong also improved, while still in decline, the CFO said.“Hong Kong is still in negative territory,” Guiony said. “We were mid-teens negative and are mid-single-digit negative now.”

Richemont, which also owns fashion and accessories brands like Chloe and Alfred Dunhill, advanced 3.6 percent in Zurich. Swatch Group AG, the maker of Omega and Longines watches, ended the day up 4.1 percent. Hermes added 1.4 percent in Paris and Kering, whose Gucci brand is on the comeback trail, gained 1.5 percent.

The luxury industry has been suffering from a drop in tourism in Europe after last year’s terrorist attacks and the March airport bombing in Brussels. Demand for expensive timepieces has been hit the hardest lately. In July, Swatch reported its lowest first-half profit in seven years as demand cratered in Hong Kong, France and Switzerland.

-bloomberg.com