LVMH shares wobble as Q4 sales update shows the impact of China disruptions
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The shares of LVMH, a French luxury goods company, recorded a slight decline on Friday after the company released its sales update for the fourth quarter of 2022. The update shed a negative outlook on the effects of China’s strict COVID restrictions on the company’s margins.
LVMH sales affected by China disruptions
LVMH is a luxury goods company that owns multiple luxurious labels. Some of the iconic labels owned by the company include iconic fashion brands, Dior and Louis Vuitton. On Thursday, the company reported that its sales increased by 9% during the fourth quarter.
The increase in sales during the period was attributed to an increase in shoppers in Europe and the United States during the holiday season. An increase in sales in the two regions helped offset the COVID disruptions seen in China, which affected numerous companies.
However, some analysts paid attention to the company’s margins. The financial results showed a flat operating margin year-over-year, which showed that the company maintained or increased its marketing spending during the second half of 2022. The shares dropped slightly by Friday, closing trading with a 0.075% drop.
LVMH expands marketing efforts
The chief financial officer at LVMH, Jean Jacques Guiony, noted that the company had maintained its marketing investments during the second half of 2022 at a 30% higher level compared to 2021 despite the poor revenue growth. However, the company had not anticipated a sharp drop in the Chinese market.
Some of the high-profile events that LVMH participated in during the year include the Dior takeover of Harrods during the holiday season. The company also organized a fashion show in Egypt that displayed the iconic pyramids.
Guiony also defended the company’s decision to curb parallel channels for perfumes and cosmetics. The executive noted that the decision was costly and affected profitability, but it was the right move to protect the brand’s appeal.
Guiony noted that in the last two years, rival brands exported many cosmetics and perfumes to China, where these products were sold at a discount. This triggered the firm’s decision to curb parallel channels.
Some analysts have also said that the negative outlook on the company’s margins in Q4 was net positive for 2023, as they set the ground for more growth. Additionally, China sales would also recover as the country opens up.
The luxury sector was dealt a major blow in China because of strict COVID restrictions. Additionally, the lifting of these restrictions has triggered an increase in infections. The luxury industry is now set to emerge as one of the top gainers from the easing restrictions that barred shoppers from accessing stores in China.
