July 24, 2018 / 4:02 PM / a month ago

LVMH shrugs off China concerns in boon to luxury peers

PARIS (Reuters) - LVMH (LVMH.PA) on Tuesday posted robust results for the first half of the year and said Chinese shoppers were still lapping up goods at its major brands like Louis Vuitton, easing fears of waning demand in the luxury industry’s biggest market.

A brewing trade spat between Washington and Beijing, which hit stocks and the yuan, has raised concerns of a trickle-down effect on China’s economy and on luxury purchases even though tit-for-tat tariff hikes have not directly hit the sector.

Chinese consumers’ appetite for branded goods appears to have largely weathered the dispute so far, however, in an encouraging sign for LVMH rivals like Paris-based conglomerate Kering (PRTP.PA), owner of Gucci.

At LVMH’s powerhouse Louis Vuitton - which ranks alongside independent label Chanel as one of the world’s top luxury labels by sales - Chinese demand was even slightly stronger in the second quarter compared with the first three months of the year, Financial Director Jean-Jacques Guiony said.

“The threats...are there but I don’t think they have materialized yet in any way,” Guiony told a conference call with analysts, referring to currency volatility and the fallout from trade tensions.

Guiony sounded a note of caution for the remainder of 2018, however, when comparison bases for earnings will be tougher and underlying trends - as well as the context on trade tariffs - could change.

And across the group as a whole, revenue growth in Asia excluding Japan dropped to 15 percent in the second quarter on a like-for-like basis, which strips out currency swings, from 21 percent in the first quarter.

FILE PHOTO: A man takes a selfie in front of a Louis Vuitton store in Cannes, France, May 7, 2018. REUTERS/Stephane Mahe/File Photo

“Although the luxury industry is not on the frontline on this, such a risk would certainly bear some negative consequences for us,” Guiony said of tariff hikes.

France’s Hermes HMRS.PA, known for its luxury leather handbags, last week said Chinese demand had remained solid, a trend also noted by British trench coat maker Burberry (BRBY.L).

COGNAC BLIP

LVMH, which also owns fashion labels like Fendi and Krug champagne, saw strong performance across most divisions.

The group’s profit from recurring operations rose 28 percent in the first six months of 2018 to 4.65 billion euros ($5.43 billion), beating expectations.

Excluding accounting effects linked to the integration of German luggage maker Rimowa, like-for-like sales growth in LVMH’s key fashion and leather goods unit would have accelerated to 17 percent between April and June from 16 a quarter earlier, Guiony said.

The unit is also home to labels like Givenchy, the couture house behind the wedding dress Meghan Markle wore for her marriage to Britain’s Prince Harry in May.

One sore spot was LVMH’s wine and spirits division.

Like-for-like sales growth in the division weakened to 3 percent in the second quarter from 10 percent in the first. The company said its Hennessy cognac sales by volume dropped in China in the period, as its distributors worked through stocks accumulated in the first quarter for Chinese New Year.

Reporting by Sarah White and Pascale Denis; editing by Emelia Sithole-Matarise

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