LVMH remains cautious despite sales rise


FT - 04/16/2010

Could bling be making a return? Sales of Dom Perignon and other expensive champagne owned by LVMH shot up by 33 per cent in the first three months of the year, as did demand for its watches, including the upmarket Hublot brand.

However, the French luxury goods group, which reported first-quarter sales figures this week, is not cracking open one of its prestige cuvée bubblies just yet.

More companies might have made losses were it not for Asian consumers, which helped compensate for the sharp drop in sales in the US and Europe. Now it appears that luxury sales are accelerating, building on the pick-up seen in the second half of 2009.

The luxury goods industry is cyclical and the improvement in demand led to a rally in luxury shares in the second half of 2009, helping them to outperform the European market last year by 37 per cent, according to Evolution Securities.

Most analysts this week upgraded 2010 and 2011 earnings forecasts for LVMH by about 5 per cent, which could lead to a broader sector re-rating. This was after LVMH's much better-than-expected like-for-like sales growth of 13 per cent against expectations of a 7 per cent rise, for the first quarter.

Karen Walker, senior managing-director at Michel Dyens & Co, the investment banking firm specialising in luxury goods, says: "Transactions are picking up. The luxury business is recovering, making M&A more attractive. In general however, the most attractive targets do not want to sell."

So no return to bling, at least not for the time being, it seems. Dennis Weber, analyst at Evolution says: "As people get richer, the memory of recession will probably be short and consumers are likely to spend again on bling-bling. However, at this stage it seems unlikely that we will see a return to the amazing spending levels of 2006-2008."

Michel Dyens