LVMH Does It Again, as Buoyant Message Gets a Cheer: Street Wrap

(Bloomberg) -- LVMH shares jumped to a record thanks to first-quarter sales that Bank of America Merrill Lynch called “exceptional” and a positive message from the French luxury giant to investors worried about a potential slowdown in the industry.

The owner of the Louis Vuitton, Fendi and Christian Dior brands said after the close of trading Wednesday the environment was “buoyant” at the beginning of the year, despite geopolitical uncertainties. The stock surged as much as 4 percent, to the highest level since LVMH went public in 1989, boosting peers across Europe, from Kering SA to Swatch Group AG and Moncler SpA.

“The choice of opening words is more bullish than we would have expected it to be,” Melanie Flouquet, an analyst at JPMorgan Chase & Co., wrote in a note. The word buoyant is “the exact word investors would have liked to read at this juncture of the sector high multiples.”

Here is what else analysts are saying about LVMH’s update:

Bank of America Merrill Lynch, Ashley Wallace (Buy)

• LVMH’s “exceptional” performance justified a re-rating
• Revenue growth at fashion & leather, the stock’s key sentiment driver, was above even the highest estimates
• While LVMH has re-rated so far this year, the implied trading multiple of peers suggest it’s still 10% undervalued

Bryan Garnier, Loic Morvan (Buy)

• Fashion & leather maintained dynamic momentum despite a slight slowdown versus 4Q
  • Louis Vuitton and Christian Dior drove growth in the division
    • Some Louis Vuitton stores have reopened after renovation (Shanghai and Monaco) and a new workshop has been opened in France to avoid too many production constraints.
  • Other F&L brands also achieved a very positive performance (Fendi, Berluti)
• For perfumes & cosmetics, 1Q saw strong growth, with dynamic momentum yet again from Parfums Christian Dior, especially thanks to J’adore, Miss Dior and the launch of Joy
  • Continued success of Fenty Beauty by Rihanna
• The watches & jewelry business had a softer trend, with watch brands such as Tag Heuer less dynamic, more affected by a challenging industry environment

Jefferies, Flavio Cereda (Hold)

• Strong set of numbers driven by soft luxury segment, where sales were up 15% on an organic, forex-neutral basis driven by Louis Vuitton volumes, with brands including Fendi and Loewe, which are “in a sweet spot now,” all outperforming
• Significant beat also at wines & spirits with FXn sales up 9%, with cognac volume up 11% amid strong U.S. and China demand, particularly the former
• Hard luxury came in at +4%, versus a Jefferies estimate of +10%; notes that since Bulgari is performing, this points to weak watch performance

JPMorgan Cazenove, Melanie Flouquet (Overweight)

• The key positive surprises stemmed from fashion & leather, up a very strong 15% organic on tough comparables, wines & spirits (+9%) and selective retailing (+8%)
• All regions were said to have performed strongly
• These numbers should be well received by the market for LVMH and the broader sector
• The other positive surprise “was to be found in the tone of the outlook”
  • The outlook statement per se was generic and referred, as usual, to sustaining leadership, but started with the welcome word ‘buoyant’
  • This is more bullish than we would have expected, given than Arnault has “rather historically” urged investors “to beware that the positive cycle will not go on forever”
  • Notes caveat in outlook is ‘albeit marked by geopolitical uncertainties’

Societe Generale (upgraded to Buy from Hold)

• Rating upgrade reflects LVMH’s sales growth beat vs Societe Generale estimates in recent quarters, including 1Q, and ensuing estimate upgrades
  • “While we remain concerned about the ongoing sector slowdown, LVMH increasingly comes out as one of the sector’s top performers, combining the benefits of scale, high spend and risk taking,” offsetting any negativity of the stock’s proxy status for the industry’s recent mixed performance

--With assistance from Blaise Robinson, William Canny and Joe Easton.

To contact the reporter on this story: Albertina Torsoli in Geneva at atorsoli@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Monica Houston-Waesch, Jon Menon

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