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LVMH’s Fashion Business Returns to Double-Digit Growth. What That Means for the Luxury Goods Sector.

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The luxury-goods sector was one of the first to be severely impacted by the coronavirus outbreak.


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LVMH


Moët Hennessy-Louis Vuitton

stock jumped more than 6% early on Friday, as the French luxury conglomerate’s fashion business returned to double-digit growth in the third quarter.

The company said revenue at its fashion and leather goods division rose 12% on the previous year to €5.9 billion, driven by the strong performance of its Louis Vuitton and

Christian Dior

brands.

The rapid return of its biggest business to double-digit growth smashed the analyst consensus for a 1% decline, and was welcomed by investors. Group revenue fell 7% to €11.96 billion, however, as performance varied among the company’s units, with jewelry down 14%, cosmetics 16% lower, and wine and spirits falling just 3% amid a strong recovery by Hennessy cognac.

“The encouraging signs of recovery observed in June for several of the group’s activities were confirmed in the third quarter in all regions, most notably in the United States, and in Asia, which once again grew over the period,” LVMH said.

However, the company said economic and health uncertainties remained, and it would continue to exercise caution with cost controls and selective investments.

The update boosted the wider sector, as Gucci owner

Kering

rose 3.9%, French peer

Hermès International

climbed 3%, and

Burberry

moved 3.1% higher.

The luxury-goods sector was one of the first to be severely impacted by the SARS-CoV-2 coronavirus outbreak, due to its exposure to China and other Asian countries where the virus was first prevalent. Global travel restrictions prevented tourists, including Chinese consumers, from visiting fashion hot spots such as London and Paris, typically a key source of revenue for LVMH and others. The sector’s problems only worsened as Covid-19 spread across the world, forcing manufacturing sites and stores in many countries to close for a period of months.

LVMH had a resilient second quarter but still reported first-half profit slumping 84% to €522 million. The third-quarter results provide some hope and encouragement, despite the disparity in performance among its divisions and the looming threat of a second wave, particularly in Europe.

The luxury group has also become embroiled in a legal row with

Tiffany

& Co. over their soured merger deal. The U.S. company filed a lawsuit against LVMH last month after the French conglomerate said it was backing out of its $16 billion acquisition of the jeweler. LVMH then countersued Tiffany, arguing the company has been so badly damaged during the pandemic that the takeover agreement is invalid. LVMH said late on Thursday the trial was scheduled for Jan. 5.

Looking ahead. Bernstein analysts said the French company’s update demonstrated a strong summer for luxury and that the “best in class” luxury brands were already in growth mode year-over-year. They maintained a buy rating on the stock with a target price of €475, up from €429.85 on Friday. “We expect more players to follow this path—most notably Hermès,” they said, adding that high quality names