Source: Company reports/Coresight Research

1H18 Results

For the six months ended June 30, 2018, LVMH reported another very strong set of results, which included revenue growth in the double digits, operating profit growth of more than one-quarter and EPS that beat the consensus estimate.

• Revenues of €21,750 million were up 10.3% and above analysts’ expectations of €21,711 million. On a constant consolidation scope and currency basis, revenue increased by 12% in 1H18; on the same basis and excluding the impact of the termination of Hong Kong International Airport concessions, revenues were up 14%.
• Strong, 13.9% gross-profit growth translated into a gross-margin uplift of more than two percentage points.
• Marketing and selling expenses were driven 7.8% higher due to the integration of Christian Dior Couture, the development of retail networks and higher advertising spend. However, the SG&A ratio declined by 72 basis points.
• These beneficial gross-margin and SG&A ratio effects flowed down to the company’s operating profit, lifting that metric by 29.1% and translating to an increase of three full percentage points in the operating margin.

Diluted EPS of €5.96 was comfortably ahead of the €5.31 consensus estimate recorded by S&P Capital IQ.

Results by Segment

In the Fashion and Leather Goods segment, the consolidation of Christian Dior Couture in 1H17 contributed six percentage points to revenue growth. Management attributed this segment’s strong performance to “the very solid momentum achieved by Louis Vuitton, as well as by Céline, Kenzo, Loewe, Givenchy, Loro Piana and Berluti.” In the Selective Retailing segment, Sephora saw “very appreciable” revenue growth, while DFS, the company’s travel retail segment, was boosted by the return of Chinese tourists to regions where DFS operates. LVMH’s Wines and Spirits segment saw very strong demand in Asia and “particularly in China.” Similarly, strong Asian demand was noted in the Perfumes and Cosmetics and Watches and Jewelry segments.

Source: Company reports

The company pointed to strong underlying growth in Asia and the US, though currency effects impacted reported results.

Source: Company reports

Outlook

Management noted that it will “continue to pursue gains in market share” against a backdrop of unfavorable exchange rates and geopolitical uncertainties. For FY18, consensus calls for LVMH to grow revenues by 8.5% and EBIT by 14.6%, and to report diluted EPS of €11.70, which would represent a 14.9% year-over-year increase.