April 10, 2018 / 7:17 AM / 2 years ago

LVMH buoys luxury sector as Chinese demand propels sales

PARIS (Reuters) - France’s LVMH (LVMH.PA), which owns brands from Louis Vuitton to Moet & Chandon champagne, on Tuesday said thriving demand for its luxury products showed little sign of fading this year, in an upbeat assessment that drove a share rally across the sector.

LVMH, the luxury industry’s biggest company, set the tone for peers, reporting better-than-expected sales growth in the first quarter on Monday, which pointed to enduring appetite from Chinese shoppers.

The group detailed on Tuesday that revenues in Asia, excluding Japan, increased 21 percent in the January to March period on a like-for-like basis, which strips out currency swings and disposals or acquisitions.

That marked a pick-up from the previous quarter, and offset a slight slowdown in Europe, while LVMH said the outlook for its fashion and leather goods unit - its biggest earnings-driver, which is powered by mega-brand Vuitton - was encouraging.

“We had a good start to the year and we expect these good trends to continue,” finance chief Jean-Jacques Guiony told an analyst conference call.

Shares in LVMH - run by Bernard Arnault, Europe’s richest man according to Forbes - touched record highs in early trading, and were up 4.2 percent by 1442GMT.

The shares of its French rival Kering (PRTP.PA), owner of Italian fashion label Gucci, also briefly touched record highs and were trading 3 percent higher, while Britain’s Burberry (BRBY.L) were up 1.3 percent.

Rebounding Asian appetite for luxury goods, especially from a younger generation of shoppers comfortable with buying big-ticket items online, is a major motor for the industry.

Asian buyers helped propel sales in products ranging from LVMH’s high-end cognacs to Bulgari jewelery, and the group said business in Hong Kong and Macau had rebounded strongly.

But headwinds still lurk and investors have been seeking reassurance that the sector’s revival was not running out of steam, especially as earnings comparisons against a strong 2017 may not be as favorable.

Trade tensions between the United States and China could have a knock-on effect on the sector if they hurt sentiment among shoppers.

A strong euro is a disadvantage, meanwhile, as it can put tourists off from spending and can hurt sales made in other currencies when converted back.

FILE PHOTO: The Louis Vuitton logo is seen on the floor of their shop at Marina Bay Sands in Singapore May 19, 2017. REUTERS/Thomas White/File Photo

Currencies had a 10 percent negative impact on LVMH’s sales in the first quarter, more than some analysts had expected.

Yet the group has some levers it can count on to mitigate that risk, including raising prices.

The cost of Louis Vuitton’s high-margin handbags rose around 1.7 percent to 1.8 percent on average in the quarter, the first hike in three to four years, Guiony said.

Editing by Sudip Kar-Gupta and Alexandra Hudson

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