PARIS (Reuters) – The LVMH title is moving up and down on Friday morning, after having initially opened clearly in the red, investors showing themselves to be divided after the announcement of the quarterly results of the luxury giant, which has become the first market capitalization in Europe.
At 11:41 am, the action lost 0.10% to 800.8 euros, after having lost up to 2.2% in the first exchanges then gained nearly 0.8% in session. The CAC 40 was virtually unchanged at the same time (+0.09%).
LVMH’s organic revenue growth, at 9% in the fourth quarter, exceeded expectations, but the level of margins disappointed and activity in China at the end of the year was weaker than expected. anticipated.
“The group delivered a stable operating margin compared to 2021 (vs. consensus of +90bps), largely reflecting the maintenance or increase in marketing spend in the second half despite disrupted revenue growth. “, commented analysts at Credit Suisse.
LVMH chief financial officer Jean Jacques Guiony said on Thursday that he had decided to maintain marketing investments in the second half, at a level 30% higher than in 2021, despite weaker growth in turnover, but that he had not expected such a significant drop in activity in China in December.
“Such a leap forward in marketing, especially for brands of this size and with this current momentum, in our view raises a question mark for the entire industry in terms of the scale of ongoing investment needed to sustain the momentum. of the brand and to consistently excite and engage increasingly discerning consumers,” the JPMorgan analysts said.
Jean Jacques Guiony pointed out that LVMH’s strategy of not going through parallel distribution channels in China – with products sold at reduced prices – for the Perfumes & Cosmetics division was “a costly decision” which impacted profitability but that it was “the right decision” which will guarantee the attractiveness of its brands.
“For two years, most of the major perfume and cosmetics groups have been sending large quantities of product to China through parallel circuits (…) We believe that in order to preserve brand capital – ‘brand equity’ – this isn’t a good idea so we’re not doing it,” the CFO said.
Jefferies analysts note in a note the confident speech of the management for 2023, “especially if the trend in China observed since the beginning of the year continues (and we believe that this will be the case)”.
“The fourth quarter is less telling than you might think: we expect outperformance versus the sector going forward,” they say.
Rogerio Fujimori, analyst at Stifel, estimated for his part that the intensification of marketing expenditure should translate into market share gains and stronger sales growth this year for the Fashion and Leather Goods division, while the sales in China are expected to rebound.
(Mimosa Spencer and Sudip Kar-Gupta, French version Laetitia Volga and Blandine Hénault, editing by Kate Entringer)