(Corrects estimate refers to the luxury sector, not one group in last paragraph)
By Alun John and Mateusz Rabiega
LONDON/PARIS (Reuters) -LVMH shares soared as much as 14% on Wednesday, a day after the luxury group reported better-than-expected sales in the third quarter with the help of improved demand in China, prompting a sector-wide rally.
The rivals of the world’s largest luxury group also recorded gains, with shares of Hermes, Kering, Richemont, Burberry and Moncler up between 5% and 9%.
Analysts saw the results beat as a good sign for continued recovery, with Bernstein highlighting that sales exceeded expectations across all divisions.
BETTER RESULTS EXPECTED SECTOR-WIDE
JPMorgan analysts said the overall environment was positive enough to expect a generally better luxury reporting season.
The rise reported by LVMH on Tuesday represents the first quarter of growth this year for the company, a sector bellwether with operations spanning fashion, alcohol and retail.
Its fashion and leather goods division, which accounts for over two-thirds of LVMH profit, improved from the previous quarter but sales continued to decline, down 2%, year-on-year.
The group said on Tuesday that sales in mainland China, a traditional growth driver for the sector, turned positive, and that shoppers were responding well to new store experiences, like the ship-shaped boutique set up by Louis Vuitton in Shanghai in June. Sales from travelling Chinese also improved, but remained negative.
Chinese appetite for luxury goods has been dampened by a property crisis, compounding overall gloom in the sector, which has also been buffeted by volatility in its other key market, the United States, where trade wars have brought economic uncertainty.
Chinese nationals, who account for around a third of industry sales, drove about 60% of the industry growth between 2000 and 2019, according to estimates from Morgan Stanley.
RETURN TO GROWTH REASSURES INVESTORS
Third-quarter sales were reassuring, said Ariane Hayate, European equity fund manager at Edmond de Rothschild, citing improvements from “idiosyncratic” elements, such as Louis Vuitton’s initiatives driving growth in China.
Sales in Asia, excluding Japan and dominated by China, accounted for 28% of LVMH’s annual turnover last year.
The quarterly figures “have indeed surprised investors positively and are likely to keep the sector’s share price momentum alive,” said Stefan Bauknecht, equity portfolio manager at DWS.
Still, with the Chinese property market showing no signs of a significant recovery, economic data suggest only a moderate positive development, he said.
Luxury sector shares had begun gaining investor favour in recent weeks, with expectations that sweeping management and creative overhauls will bear fruit.
However, LVMH Chief Financial Officer Cecile Cabanis warned on Tuesday that the group would continue to face economic uncertainty and unfavourable exchange rates in the fourth quarter.
UBS, which forecasts 4% organic sales growth next year for the sector, expects an inflection in sales growth only in the second half of next year, with collections from new designers entering stores starting in the second quarter.
($1 = 0.8602 euros)
(Reporting by Alun John, Mateusz Rabiea, Mimosa Spencer and Tassilo Hummel; Editing by Amanda Cooper, Emelia Sithole-Matarise and Tomasz Janowski)
