* Buoyed by evidence of luxury sector revovery
* US, Japan, Europe offset China slowdown
* Louis Vuitton keen to maintain exc lusivity
(Recasts, adds details about Louis Vuitton, analyst, management
PARIS, July 26 Shares in LVMH soared
on Friday after the luxury group reassured investors about
margins and sales growth at its star brand Louis Vuitton and
joined rival Kering in pointing to an uptick in sales
in the second quarter.
The latest figures added to evidence of a rebound in the
luxury sector as solid demand in Japan and the United States
combined with recovery in Europe to offset China's slowdown.
Investors were concerned that Louis Vuitton's growth was
running out of steam after enjoying more than two decades of
annual increases above 10 percent, driven by a rapid expansion
around the globe.
The stock in industry leader LVMH rose as much as
5.7 percent - their biggest one-day gain in more than three
LVMH Chief Executive Bernard Arnault, France's richest man,
said in January that Louis Vuitton's slowdown was voluntary and
the brand had put the brakes on opening new shops to preserve
At that time, Arnault publicly admitted for the first time
that Louis Vuitton, LVMH's biggest contributor to profits, was
at risk of being too ubiquitous.
To counter that perception, Arnault said the brand would
move upscale and expand its leather bag offering while pruning
its portfolio of LV-embossed canvas bags which make up two third
of its business and generate gross margins of around 90 percent.
LVMH Finance Director Jean-Jacques Guiony on Friday said
Louis Vuitton's margins rose in the first half, both at the
operating and gross level, reversing a decline which analysts
estimate started two or three years ago.
"People feared that less canvas and more leather could
impact Louis Vuitton's margins," said Exane BNP Paribas analyst
HSBC calculated that Louis Vuitton's operating margin fell
to 42 percent from 44 percent between 2011 and 2012.
Sales growth at LVMH's fashion and leather goods division,
of which Louis Vuitton makes up 75 percent of sales, doubled in
the second quarter to 6 percent from 3 percent in the previous
three months on a like-for-like basis.
"It is a relief that there is an improvement in the second
quarter and that the margin (at LV) stopped deteriorating," said
Zurich-based Andrea Gerst, who helps run the Julius Baer Luxury
Brands fund with 417 million euros ($551.92 million)under
Referring to Louis Vuitton's performance regionally, Guiony
said trading in Asia was "flattish," in the United States "in
the mid-single digits" while in Japan and Europe, it was "a bit
higher or a bit lower than double digit."
Guiony added that the bulk of Chinese demand today was from
tourists and estimated overall Chinese demand for the brand to
be in "mid-single digits" terms.
Analysts estimate that growth in the global luxury goods
industry will slow down to around 6-8 percent in 2012, or about
twice the level of global GDP growth depending on estimates,
compared with 10 percent growth last year.
Luxury investors and analysts said they expected trading to
continue to improve in the second half of the year, partly
thanks to the return of Chinese customers, the world's biggest
buyers of luxury goods.
"We expect a slow but steady recovery of Chinese luxury
demand because of the underlying appetite for luxury and wealth
creation continuing," Gerst said.
In the past year, China's luxury market, which had been the
industry main growth driver, was hit by a slower economy and the
government's crackdown on the country's tradition of gift-giving
to facilitate transactions and deals.
LVMH rival Kering on said on Thursday the slowdown continued
in China but earlier this week Swatch Group, the
world's biggest watch maker, said it expected Chinese demand to
improve in the second half.
Before Friday's rise, shares in LVMH were down 6 percent
since January, making them the second-worst performers on the
Paris CAC 40 index of blue-chips and the worst
performing European luxury stock overall.
By comparison, shares in peers such as Kering,
previously known as PPR, have gained 28 percent since January
while shares in Bruno Cucinelli and Salvatore Ferragamo
have risen more than 50 percent.
On Friday alone, Kering shares jumped 4.5 percent.
Since January, UBS had estimated that LVMH underperformed
luxury peers by over 30 percent and traded on a 2014 enterprise
value to earnings before interest, tax, depreciation and
amortisation (Ebitda) of 8.1 times, below the sector average of
9.7 times, excluding the very highly valued Hermes.
($1 = 0.7555 euros).
(Reporting by Astrid Wendlandt, additional reporting by Blaise
Robinson,; Editing by James Regan and David Cowell)