LVMH beats earnings estimates and hikes dividend as Sephora sparkles and “Asian consumers return”

29 Jan 2024 --- The earnings bonanza continues with luxury retailer LVMH posting solid results in its fourth quarter, with annual growth in its perfume and cosmetics division soaring 11% year-over-year.

The stock jumped higher on the news, with many analysts seeing LVMH’s results as a sign the luxury goods space may not experience the sharp downtown previously expected.

Darren Sissons, partner and portfolio manager at Campbell, Lee and Ross in Toronto, Canada, tells Personal Care Insights the stock price movement was quite surprising:

“The stock moved up 12% on the Dow Jones Industrial Average index [Friday] — a monster movement in one day for a company that size. A couple of things would explain that just from a market movement point of view. There was obviously a lot of short negativity on that, so perhaps it was somewhat of a recovery. Guidance was better — well, definitely better than expected and we obviously saw the Asian consumers return. The inclusion of Tiffany was there as well, but let’s bear in mind that the portion of the population targeted by LVMH…ultimately tends to wear their recessions much better. So there was just a sort of a reiteration to the markets that the client base is in good shape.”

LVMH chairman and CEO Bernard Arnault said in a statement, “Our performance in 2023 illustrates the exceptional appeal of our Maisons and their ability to spark desire despite a year affected by economic and geopolitical challenges.”

It was a turbulent year-end for the luxury sector amid geopolitical and macroeconomic headwinds, especially in the US and China. Still, the world’s largest luxury group raised its dividend and guidance.

Sephora sparkles as affordable luxury

Sephora’s sales and profits were “the best performance in all the LVMH buckets.”The French luxury powerhouse pointed to Sephora achieving “another historic year, both in terms of sales and profit,” with revenue rising 25% year-over-year to US$19.4 billion. The company’s end-of-year earnings report said it was “the best performance in all the LVMH buckets.”

As inflation continued to pressure consumers and their disposable income, many shoppers sought solace in “affordable luxuries” such as cosmetics and fragrances, finishing the year with record sales and profits.

Sissons says Sephora’s performance shows it’s a great addition to LVMH’s extensive portfolio of companies that include Louis Vuitton, Givenchy and Bulgari:

“It is a lower margin business relative to the group, but you are seeing very solid growth, and I think that’s been a great acquisition for low return. If you look across the whole fragrances segment, L’Oreal also had some relatively decent multi-year outlooks. Cosmetics is a segment that’s starting to become much more resilient.”

Givaudan’s earnings beat
Last week, Givaudan posted results that beat estimates, with 2023 sales rising 4.1% to CHF 6.9 billion (US$8 billion). The company said price increases helped offset rising raw material costs, while its fragrance unit also showed strength amid a “challenging environment.”

Sissons says it was a strong report for the Swiss-based company:

“The line item I would call out is free cash flow. It was up about 92%. That’s not something you see every day. Also, a nice improvement on the top and bottom lines as well. There was a lot to like in that report.”

With more people returning to the office after years of staying home due to the pandemic, Sissons sees further growth, especially in the cosmetics and fragrances divisions.

By Anita Sharma