A new report from Bloomberg Intelligence has found that China’s reopening and recovering global travel retail favour LVMH over many luxury peers.
LVMH’s ability to lead the pack in these uncertain economic times is due to 9% organic sales and 30 bps gross margin growth in 2023, which has stemmed from its unrivalled range of categories and geographies. In addition, its margin performance is much more mixed than revenue, with several sectors due to sizable benefits from China’s reopening.
The group is still the only luxury goods peer present on a global scale across six major-market sectors: Fashion & Leather Goods, Selective Retailing, Perfumes & Cosmetics, Wines & Spirits, Watches & Jewellery and other activities. Fashion & Leather manufacture drives the strongest growth and profitability across an array of luxury brands led by Louis Vuitton, which exceeds revenue of €20 billion.
Selective Retailing, including DFS duty-free, and Other Activities are most dependent on a progressing global travel recovery, with DFS heavily exposed. Wines, spirits and fragrances can also benefit from more travel shoppers.
Deborah Aitken, Bloomberg Intelligence Senior Consumer Products Analyst, added, “LVMH’s Fashion & Leather Goods – its biggest division, with 14 houses and half of group sales – is the fastest driver of revenue and profit with brands’ demand escalating.
With an average growth rate exceeding 2x the luxury goods market, the unit’s €39 billion of annual sales also secured its best sector-adjusted operating margin (40.6%) – making up 75% of adjusted operating profit – and should maintain top rank in the midterm. Louis Vuitton is the No. 1 brand, with sales in excess of €20 billion and, we believe, two-thirds of Fashion & Leather Goods’ total.
Christian Dior is still a distant No. 2, though it’s highly ranked and building momentum. New designs and personalized marketing are driving the in-store and online brand’s momentum. Fashion & Leather organic growth could rise 10% in 2023.”
Selective Retail Due Boost as Travel, Hotels Build
Selective Retailing – LVMH’s No. 2 division – is due to a major step up in revenue – up high single digits to €16 billion in 2023 based on consensus estimates, or 19% of the total – and in operating leverage to help rebuild and expand margin in the midterm.
A pickup in Asian travel and China reopening will aid prospects. Asia-dependent Duty-Free Shoppers (DFS) and Sephora (majority in-store beauty consultation) are two of the largest of its five houses in selective retailing. Selective retailing also encompasses the most-luxurious department store and food halls in Paris.
LVMH Jewellery Share, Margin Prospects Raised With Tiffany
Recent order books for watches and jewellery and the revival of events such as Watches and Wonders are aiding sector confidence, with LVMH playing a more prominent role since its acquisition of Tiffany early in 2021.
Sales at LVMH’s Watches & Jewellery division are forecast by consensus to exceed €11 billion in 2023, up 15%, with a high-teen adjusted operating margin and long-term uplift potential.
Representing eight houses, Watches & Jewellery is LVMH’s most recently established unit and – following the $15.8 billion acquisition of Tiffany – its third-largest division (formerly sixth). Tiffany boosted exposure in Asia, while LVMH’s Bulgari and Chaumet brands should help raise Tiffany’s high-end position.
In November, LVMH acquired Pedemonte (a 2020 merger of several production workshops), which has added capacity in Italy and France.
Beauty Recovery Due, More Work Needed on Margin
With sector revenue likely to exceed €8 billion in 2023, LVMH is a major player in luxury perfumes, makeup and skincare, and its 15 brands should prove a top beneficiary of the full return of international travel in the next 18-24 months.
Heavier exposure to expensive makeup and perfumes is reaping the rewards, led by Parfums Christian Dior in Europe and the US, while acquisitions of brands such as Officine Universelle Buly, with natural and water-based scents, body oils and hand creams, build some skincare scale. Bloomberg Intelligence thinks LVMH can bolster the division more via store openings and more deals.
The operating margin at less than 10% is half that of peers such as L’Oreal and Estee Lauder. China’s reopening and added focus on high-margin skincare deals, plus owned-brand extensions, could help over the long term.
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