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LVMH Q1 Revenues Jump Despite War in Ukraine, China Lockdowns

The world's biggest luxury group logged double-digit growth in the U.S. and Europe, fending off concerns about the outlook for growth and inflation.

The new Louis Vuitton store at Hudson Yards. Photo by Brad Dickson. BRAD DICKSON

PARIS — It seems no amount of bad news can dampen the momentum at LVMH Moët Hennessy Louis Vuitton.

The luxury conglomerate, which owns 75 brands including Louis Vuitton, Dior, Tiffany & Co. and Sephora, said revenues soared 29 percent in the first quarter, as the U.S. and Europe logged double-digit growth, fending off concerns that the war in Ukraine will weigh on growth and fuel inflation.

Meanwhile, sales in Asia continued to increase despite the impact of a tightening of health restrictions, including a drastic lockdown in Shanghai, that has forced the group to close between 15 percent and 25 percent of its stores in Mainland China since March 15, according to chief financial officer Jean-Jacques Guiony.

Total revenues in the three months to March 31 totaled 18 billion euros, exceeding a FactSet consensus estimate of 17.03 billion euros. That represented a rise of 23 percent year-over-year on a like-for-like basis, indicating a slight slowdown from the fourth quarter of 2021, when organic revenues increased 27 percent.

“In the current geopolitical context and in light of the ongoing impact of the pandemic, LVMH remains both vigilant and confident at the beginning of this year,” the group said in a statement.

The key fashion and leather goods division posted organic sales growth of 30 percent during the period, also beating analysts’ median forecast. The rise was fueled by Vuitton and Dior, its two star brands, as well as “very strong” growth at Celine and a “solid” increase at Fendi.

“We have a very, very good momentum in demand all over the world, sometimes coupled with relatively easy bases of comparison, as is the case in Europe, and that makes for good figures,” Guiony told WWD.

Sales in the U.S. were up 26 percent in the quarter, reflecting the continued strength of what is now the group’s largest market. Europe grew by 45 percent and Japan by 30 percent, reflecting robust activity, but also a weak comparison base in the first quarter of 2021, when many stores were closed due to the coronavirus pandemic.

Revenues in Asia rose by just 8 percent, compared with an 86 percent jump in the same period last year, as store closures in China outweighed the positive performance of other countries like Singapore and South Korea. But Guiony was confident that the key Chinese luxury market would rapidly bounce back, as it has in the past.

“The Chinese authorities have demonstrated an ability to take very energetic and broad-reaching measures to contain the pandemic in a fairly short period of time, so one could be hopeful that they will do the same again,” he said.

“And the second takeaway from [the] 2020 experience is that although this could have an impact short-term, it has no impact whatsoever on the strength of the demand. And once the whole thing is under control, and is over, we see demand coming back to our stores exactly the same way as it was prior to the lockdowns,” he added.

In a call with analysts after the market close, Guiony offered no insight into how the war in Ukraine was affecting consumer spending, but indicated that tourism flows were improving overall despite the continued absence of Asian travelers.

“The business we do in 2022 with tourists is significantly on the way up compared to 2021, but obviously, only a fraction of what it was in 2019,” he said. “On the one hand, we can be pleased with the level of tourism with Europeans and Americans wherever they go. But on the other hand, we lack entirely any form of Asian tourists, either within Asia or on other continents.”

As a result, some brands that previously relied on tourists for up to 30 percent of their revenues have now seen that contribution reduced to as little as 10 percent, he added.

LVMH said in early March it was “temporarily” closing its stores in Russia “given the current circumstances in the region.” It is believed the conglomerate operates about 120 boutiques in Russia. In parallel, it donated 5 million euros to the International Committee of the Red Cross to help the victims of the conflict in Ukraine.

As part of a range of sanctions against the government of President Vladimir Putin, the U.S. and European Union have banned sales of luxury goods to Russia.

However, the direct impact of the measures is expected to be limited as the importance of Russia and Russian nationals for the luxury goods sector has declined over the years and is now “relatively immaterial,” according to a recent report from Morgan Stanley. The bank estimated that for companies such as LVMH and Kering, Russians account for about 1 percent of worldwide sales.

Potentially more damaging is the impact of the sanctions on the sourcing of raw materials. Russia is the world’s biggest supplier of diamonds, but Guiony minimized the scale of the disruption to LVMH’s jewelry division. “We are currently working on replacing sourcing from Russia, from other locations, and it’s perfectly doable in a reasonably short timeframe,” he said.

Tiffany has already said it was stopping the use of Russian-sourced diamonds in its jewelry.

Amid news that U.S. annual inflation hit a four-decade high of 8.5 percent in March, analysts questioned Guiony about LVMH’s pricing policy. The executive told WWD that brands including Vuitton, Dior, Tiffany and Bulgari have introduced increases since the start of the year, by around 4 to 5 percent on average. Earlier this year Dior said it raised prices worldwide by 8 percent on Jan. 18.

“Inflation is a problem for companies when they’re not able to pass on the rise in production costs in their retail prices but for us, that’s not so much the case. We have significant pricing power,” he said.

Guiony added that LVMH was ramping up production to keep pace with demand, including the recent opening of two Louis Vuitton leather goods workshops in France specializing in exotic skins. “We have a lot of initiatives and we do not intend to be overwhelmed with demand,” he said.

As the world’s largest luxury group, and the first to report quarterly sales, LVMH will set the bar for the rest of the sector. Hermès International is scheduled to publish first-quarter sales on Thursday, with Kering to follow on April 21. Meanwhile, Compagnie Financière Richemont is due to report annual results on May 20.

LVMH reported double-digit organic growth in all divisions except wines and spirits, which saw revenues rise 2 percent in the first quarter, due in part to supply constraints in its cognac division. Sales of watches and jewelry were up 17 percent, fueled by strong performances from Tiffany and Bulgari, while perfumes and cosmetics posted a 19 percent increase.

Though selective retailing recorded a 24 percent rise in like-for-like revenues, helped by a strong rebound in Sephora’s own store network, its travel retail division DFS remained moribund. While first-quarter revenues at Sephora were 10 percent above 2019 levels, DFS was 50 percent below, Guiony told WWD. However, he believes it can rise back from its ashes.

“This is a business that has been heavily restructured and the breakeven point has been lowered tremendously,” he remarked. “We are very close to breakeven and hopefully breaking even this year. But if for some reason the business was to recover either in Macau or in Hong Kong or in both, obviously we would benefit very strongly from that.”

Finally, Guiony broached the subject of the metaverse, suggesting that despite LVMH chairman and chief executive officer Bernard Arnault’s cautious official stance, the luxury conglomerate is actively exploring the possibilities of the digital environment and its adjacent innovations.

“The whole thing is interesting, promising but starting, and I think I would make a fool of myself if I was telling you exactly what we have in mind,” said Guiony.

“The short answer is that we are looking at it very carefully. And we are making sure that we know what’s going on and we can participate, if it makes sense to do so. There are many initiatives that could possibly lead to business developments, and you can rest assured that whatever happens, we’ll be part of it,” he concluded.


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