LVMH: Sales Helped by Chinese Rebound Even as U.S. Demand Moderates

We are increasing our fair value estimate for wide-moat LVMH MC to EUR 640 from EUR 590, as we incorporate the time value of money effect and slightly better expectations for 2023 sales and profits into our models.

Revenue in the first quarter grew by 17% organically, an impressive sequential acceleration from 9% in the fourth quarter and despite a challenging comparison base (23% organic increase in the first quarter of 2022). Growth was driven by selective retailing (28% organically with strong growth in Sephora and rebound in travel that benefited DFS) and the most profitable and largest fashion and leather goods division (up 18% organically, on top of 30% growth for the first quarter of 2022). Louis Vuitton was slightly worse than division average growth and Dior brand slightly better. Recovery in China has been strong despite a relatively difficult comparison from last year (lockdowns started mid-March and affected the second quarter of 2022). The U.S. market was up 8% for the group but led by strong performance of Sephora as cognac sales were down (wines and spirits division up 3% in the quarter) and fashion and leather goods decelerated. Demand for fashion and leather goods remained strong among European consumers. We were wary of deceleration of developed markets demand after strong growth in previous years and given a tougher macroenvironment, but so far LVMH’s fashion and leather division seems to weather this—likely boosted by market share gains and Chinese demand.

Interestingly, management seemed sanguine on the capacity situation (both manufacturing and retail) for its main brand Louis Vuitton, that largely doubled in revenue from 2018 to 2022 despite no significant store footprint increase. Sales density remains subpar in China, where recovery in demand is expected in 2023. However, no major store expansion program is planned for Europe either, even as Chinese travelers return.