LVMH Hopes for Boost in Earnings from Resurgent Luxury Spending in China

LVMH, the world's largest luxury goods group, is headquartered in Paris. The company owns a number of high-end brands, including Louis Vuitton, Moet & Chandon, and Hennessy. LVMH is a publicly traded company, with a market capitalization of over $100 billion.
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Moët Hennessy Louis Vuitton SE is scheduled to report fourth-quarter and full-year 2022 results later Thursday. The company is benefiting from a surge in demand for luxury goods, which is expected to continue this year thanks to recently loosened Covid-19 restrictions in China.
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The postpandemic demand for LVMH's dozens of brands, including fine wine, jewelry, fashion labels, and upscale hotels, has solidified the group's position as the most valuable listed company in Europe. This demand has also helped LVMH's chief executive and controlling shareholder, Bernard Arnault, overtake Elon Musk as the world's richest person.
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LVMH's stock price has recently surged as China begins to lift many of the pandemic-era restrictions that have kept Chinese tourists away from major luxury markets like Paris, London and Milan. For more than two years, these restrictions have taken a toll on the luxury industry, but with China beginning to open up again, there is hope for a rebound.
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Thursday's results will come shortly after the company announced a major management shake-up. This will involve some of the company's top managers, as well as Mr. Arnault's daughter, Delphine Arnault. Some of the company's biggest brands will also be affected.
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Many of the world’s best-known luxury brands have been able to raise prices steadily through the pandemic. Shoppers, many of whom had saved up money as they stayed indoors during lockdowns and other restrictions, have let loose. High-end shoppers have also proven more resilient to the steep inflation that Covid-19 restrictions gave way to. Luxury-goods supply chains, often highly local, weren’t disrupted as much by the pandemic and later the war in Ukraine.
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LVMH has emerged as Europe's largest company by market value, outstripping the continent's industrial stalwarts, such as Shell PLC, Airbus SE and Volkswagen AG, which have all struggled with a series of shocks to their businesses. That has all helped the company weather the pandemic better than its competitors.
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There are still questions about how long the luxury goods boom will last after the pandemic ends, as the economic outlook in the US and Europe is still uncertain. In a recent report, consulting firm Bain & Co. predicted that sales of personal luxury goods would only grow by 3-8% in 2023, compared to the estimated 22% growth last year.
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Analysts polled by FactSet estimate that the French luxury-goods conglomerate will book quarterly sales of 22.44 billion euros, equivalent to about $24.5 billion, in last year’s final quarter. This is up from €20.04 billion during the same quarter the prior year. Net profit is expected to come in at €14.61 billion for the full year, up 21% from the previous year.
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British fashion house Burberry Group PLC and Cartier owner Cie. Financière Richemont SA said last week that sales to Chinese shoppers were starting to pick up after fourth-quarter lockdowns dragged them down. This could be an early sign of recovery in what was the luxury industry’s biggest market before the pandemic.
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Stifel analyst Rogerio Fujimori wrote in a research note this week that the market is likely to look past any Covid-19 setback in China in the fourth quarter and focus on the country's reopening tailwind for the sector this year. Mr. Fujimori added that January sales growth will have turned positive for LVMH in China, also helped by the earlier start to the weeklong Lunar New Year holiday.
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The U.S. emerged as the luxury industry’s biggest market last year, accounting for between 32% and 34% of global luxury spending. This is a sharp increase from the 22% Americans represented in 2019, prepandemic, according to the Bain report.
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Although LVMH does not typically release financial information for its individual brands, investors will be looking for clues about the performance of brands such as Louis Vuitton and Dior. These two brands alone are estimated to account for around 70% of the company's core profit, according to analysts at UBS.
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Pietro Beccari will take over as CEO of Louis Vuitton next month. Beccari is currently the CEO of Dior, and under his leadership, the company has opened a new flagship store in Paris and undertaken a number of high-profile marketing initiatives around the world.
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Mr. Arnault has tapped his daughter Delphine to succeed Mr. Beccari at Dior. This marks a homecoming of sorts for Ms. Arnault, who worked for Dior for 12 years before joining Louis Vuitton. There, she was in charge of all product-related activities. Most recently, she was responsible for a collaboration between the brand and reclusive Japanese artist Yayoi Kusama for a new collection.
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Dior's revenue has more than tripled over the past five years, analysts say. This is Ms. Arnault's first job as a brand CEO, and how she handles it could have an impact on whether she is seen as a possible successor to her father.