Daily Management Review

LVMH Performance Spurs $70 Billion Investment In Stocks Of Luxury Companies


LVMH Performance Spurs $70 Billion Investment In Stocks Of Luxury Companies
Investors poured money back into high-end luxury shares, increasing their market value by almost $70 billion as LVMH's most recent sales numbers gave them confidence that the industry would weather economic challenges, especially in China.
The shopping frenzy contributed to partially offsetting last year's losses, as China's economic recovery from the removal of COVID-19 limitations proved to be a mirage.
LVMH's stock worth increased by around $30 billion as a result of an 11% surge in its shares, which also helped the French luxury conglomerate Kering and Hermes.
As a result, the European STOXX 600 index rose to its highest point in the previous two years.
After revealing in October that sales growth had slowed, LVMH, the largest luxury conglomerate in the world and owner of brands like Louis Vuitton, Christian Dior, Hennessy, and Tiffany & Co., reassured investors who had grown gloomy about the industry's prospects with a 10% increase in fourth-quarter sales over the end-of-year trading period.
CEO and chairman of LVMH Bernard Arnault expressed satisfaction with the company's current growth rate on Thursday.
According to a letter from Jefferies analyst James Grzinic, LVMH should "steady nerves in the near term" after its most recent report.
Many investors felt that LVMH's tenacity was sufficient justification for returning to the industry.
As LVMH was poised for its greatest day since 2009, speculators with pessimistic bets hurried to cover short positions as shares broke through critical barrier levels.
Friday afternoon saw LVMH's relative strength index (RSI) reach 72, the highest degree of overboughtness in a year.
A real estate crisis, rising young unemployment, and the delayed recovery of Chinese tourism outside of Asia have all contributed to investors' recent concerns about Chinese consumers' appetite for European fashion companies.
Although LVMH executives acknowledged that it was challenging to gauge Chinese demand, the company now has twice as many Chinese clients as it did in 2019.
"We're not particularly concerned," said LVMH chief financial officer Jean-Jacques Guiony.
The group is doing brisk business with wealthy Chinese customers, even though massive bus loads of Chinese buyers are no longer arriving in Europe. Louis Vuitton, the largest brand under LVMH, has returned to sales levels of 70% of 2019 in France and Europe with Chinese consumers.
The luxury goods business has become dependent on China, where the market tripled in size during a five-year period, from 2017 to 2021, according to consulting firm Bain.
Bain predicts that by 2030, mainland China will rank among the world's top markets with a share of 24%–26%, making up 35–40% of the global luxury market.
The sector's growth has slowed from the high speed observed following the pandemic, exposing the disparate fortunes of brands. Hermes, which caters to affluent customers, is a brand better suited to withstand economic challenges than Burberry, which is pursuing a turnaround and released a profit warning earlier this month.
Strong high-end players should be able to maintain their margins this year even as sales growth slows, according to Thomas McGarrity, head of equities at RBC Wealth Management, while weaker brands should struggle.
"We believe the medium to long-term structural outlook remains positive for luxury goods, given tailwinds related to emerging middle-class consumption, especially in China, as well as the industry’s strong pricing power," he said.
On the blue-chip STOXX50E index for the euro zone, LVMH was the biggest gainer.
Based on calculations by Reuters, Friday's advances increased the worth of the leading luxury and beverage firms by around $70 billion. These companies include LVMH, Kering, the owner of Gucci, Hermes, Pernod, Remy, Richemont, the owner of Cartier, and Moncler.
Kering's stock rose 7.2%, Hermes' 5.5%, Richemont's 5.9%, and Pernod's 8.1% during trading.