LVMH flags tougher year end even as China boosts sales

LVMH, the world’s biggest luxury goods company, on Tuesday said the months ahead might be bumpier after producing stronger than expected sales growth in the third quarter which sent its shares towards record highs.

Chinese demand for LVMH’s high-end clothing labels and spirits helped sales to rise more than expected in the third quarter, boosting its shares and those of its rivals.

But the Paris-based group, home to fashion houses such as Louis Vuitton and Fendi and champagne maker Moet & Chandon, warned of pitfalls that could weigh on growth rates in the fourth quarter, including dwindling cognac stocks.

LVMH, like its rivals, is grappling with a strengthening euro that could dampen tourist spending. It also faces tougher comparisons between October to December, when earnings will compare to a year earlier when a recovery in Chinese spending following a recession was already in full swing.

“The real tough comparison base starts in September and in the fourth quarter,” LVMH’s Chief Financial Officer Jean-Jacques Guiony told a conference call on Tuesday. “We still feel the challenges identified at beginning of year are still there.”

LVMH has been cautious for a while about the impact of political events on luxury spending, including Britain’s vote to leave the European Union, Donald Trump’s election to the White House or escalating diplomatic tensions over North Korea.

In an industry exposed to rapidly-changing consumer tastes, luxury goods companies are sensitive to anything that could affect tourist flows or dampen demand from clients in all-important regions such as Asia.

FROST AND HAIL

LVMH’s shares closed 2.2 percent higher at 237.4 euros, near a record high of 239.65 euros reached in May. Its gains pushed up shares in rivals which are set to publish trading updates shortly. Gucci-owner Kering was up 2.2 percent.

“The continued strong growth in the third quarter despite tougher comparisons signals a positive demand environment amongst luxury consumers that is encouraging for the broader luxury sector,” Goldman Sachs analysts wrote in a note.

LVMH also revealed a strong performance in its perfume and cosmetics business, which includes brands such as Benefit and Guerlain.

But LVMH said production constraints around its Hennessy cognac business, and specifically the lower-end “VS” categories that are popular in the United States, were unlikely to fade soon.

A frosty spring in 2017 and hail last year has also hurt cognac production yet to hit the market, meaning Hennessy would have to carefully manage current stocks to tide itself through the blips to come, LVMH said.