LVMH – 1Q 2020 Results

However, the group’s outlook for the rest of the year was the focus of the result. Management's commentary on the level of recovery in China – a key concern for many - surprised positively and suggests that demand for the group’s high-end items remains strong despite the Covid-19 outbreak.

LVMH reported its Q1 sales on 16 April. Sales declined in line with expectations. However, the group’s outlook for the rest of the year was the focus of the result. Management's commentary on the level of recovery in China – a key concern for many - surprised positively and suggests that demand for the group’s high-end items remains strong despite the Covid-19 outbreak.

The results came in better than expected with organic sales -17% year-on-year (y/y) vs expectations -18%, driven by the Fashion & Leather Goods (F&LG) division - the group’s largest and most profitable division. Despite the small beat, Q1 sales were of a lesser focus due to the likely deceleration in Q2 due to the Covid-19 outbreak globally.

F&LG reported a sales decline of 10% (vs expectations -15%). Wines & Spirits was -14% y/y (vs expectations -12%). Selective retailing fell -26% (vs expectations -24%) dragged down by DFS. Watches & Jewellery dropped -26% (vs expectations -24%) with the jewellery category underperforming given its retail exposure, but now watches are said to be weakening due to retailers de-stocking. Perfumes & Cosmetics declined -19% (vs expectations -13%).

• F&LG was impacted less significantly than expected. The division continues to outperform industry peers which are experiencing declines of around 15%-20% (Burberry guided down 30%, Kering down 15%), pointing to market share gains. This also suggests that trading was strong at the group’s largest brand, Louis Vuitton (50% of group profit), prior to store closures, as well as Christian Dior. These two brands were also the star performers in prior results.
• The focus was on management's commentary on the level of recovery in China, which surprised positively. Although the visibility remains limited, CFO Jean-Jacques Guiony stated that the group's "largest" F&LG brands were currently seeing around 50% y/y growth rates in Mainland China since mid-March, thus confirming the robust recovery in China – the key upside risk to consensus estimates. However, this is still not enough to offset almost no overseas spending, resulting in Chinese luxury consumption still tracking down overall.
• According to management, E-commerce is offsetting a "significant" part of sales lost due to store closures for the more established brands (Louis Vuitton, Sephora etc).