PARIS — LVMH Moët Hennessy Louis Vuitton said it was cautiously confident heading into 2023 amid signs of a recovery in China following President Xi Jinping’s decision to reverse strict COVID-19 restrictions.
Speaking after the luxury group reported another year of record results, Bernard Arnault, chairman and chief executive officer of LVMH, said the signals from China were positive so far.
“I’m quite confident that the Chinese leaders being very shrewd, they will surely take advantage of the period that is starting to revitalize Chinese growth. If this is the case—- and we’ve seen signs of it in January — then we have every reason to be confident, even optimistic, about the Chinese market,” he told analysts and reporters gathered at LVMH headquarters here.
However, he forecast Chinese tourists would not resume traveling extensively before the second half of the year.
Due to the disruption caused by the coronavirus pandemic, it marked the first time in three years that Arnault, currently listed as the world’s richest person, has hosted a physical press conference for the publication of the annual results.
LVMH, which owns brands including Louis Vuitton, Dior, Sephora and Tiffany & Co., recently unveiled a major management reshuffle that will see the tycoon’s eldest child, Delphine Arnault, take over as CEO of Dior. She was present at the event alongside her brothers Antoine, Alexandre, Frédéric and Jean, who all work at the family-run conglomerate.
Arnault said it was important to shake up the leadership in order to remain agile. “In a large company, as in any human organization, you have to evolve. I think it’s very bad to keep a form of organization [that] leads to a spirit of routine,” he explained.
However, the 73-year-old executive wryly noted he isn’t going anywhere, squelching speculation about his succession. LVMH shareholders last year approved a company bylaw pushing back the age limit for Arnault’s retirement to 80.
“Regarding succession, you may have noticed also that the retirement age — it’s the talk of the town — has been extended,” he said, referring to controversial plans by the French government to push back the legal retirement age.
Shares in LVMH have risen 15 percent since the start of the year as markets bet that China’s reopening will support the ongoing strength of luxury sales. Earlier this month, LVMH became the first European company with a market capitalization of more than 400 billion euros.
The group’s revenues rose 15 percent in the fourth quarter to 22.7 billion euros. This represented an increase of 9 percent at constant exchange rates, down from the 19 percent recorded in the third quarter, but above consensus forecasts for a 6 percent to 7 percent rise, according to analysts at Bernstein and RBC Capital Markets.
“With the month of January having started well and despite an uncertain geopolitical and economic environment, LVMH is confident in its ability to continue the growth observed in 2022,” the group said in a statement released after the stock market’s close.
“Our performance in 2022 illustrates the exceptional appeal of our maisons and their ability to create desire during a year affected by economic and geopolitical challenges,” Arnault said in the press release. “We approach 2023 with confidence but remain vigilant due to current uncertainties.”
Organic revenues in Asia fell by 8 percent in the three months to Dec. 31, sharply impacted by regional lockdowns and quarantines in China. Foot traffic in China was 85 percent below 2019 levels in December, and 40 percent below in January, said Jean-Jacques Guiony, chief financial officer of LVMH.
“We’ve seen several weeks of improvement which allow us to consider that what happened in China in December was really a patch of turbulence,” he said. “Things are evolving very positively, but it’s perhaps a little early to completely change our outlook for the year.”
In Japan, like-for-like sales rose 29 percent in the fourth quarter, while Europe was up 22 percent and the U.S., 7 percent.
Guiony said that although U.S. growth appeared to be slowing on a quarterly basis, this was due in part to the strength of the dollar against the euro, which has prompted U.S. travelers to transfer some of their purchases to Europe.
“I’m not at all convinced there is a significant slowdown in U.S. demand. When you look at Sephora in the United States, the fourth quarter was the best of the year, and Sephora is quite a good barometer of what is happening in luxury,” he noted.
Arnault touted the strength of the group’s key fashion and leather goods (FLG) division, noting that in 2022 as a whole, revenue at Louis Vuitton topped 20 billion euros for the first time, while sales at Celine have doubled to more than 2 billion euros in the five years since Hedi Slimane took over as artistic director of the house.
Responding to an analyst who questioned whether Vuitton could continue to grow at its current pace while remaining desirable, Arnault said: “Don’t be too impressed by size. I think what matters most is quality. Today, our products sell nicely while remaining hard to find.” He noted that some items from Vuitton’s collaboration with Japanese artist Yayoi Kusama, launched this month, are already out of stock.
The FLG unit posted a 10 percent rise in organic revenues in the fourth quarter, beating consensus estimates for a 9 percent increase. But watches and jewelry fell short of market expectations with a 3 percent organic sales rise during the key holiday period. By comparison, Compagnie Financière Richemont reported an 8 percent rise in organic revenues at its jewelry maisons during the same period.
Nonetheless, it was a record year for Tiffany. Arnault said its operating profit would surpass $1 billion for the first time, and he speculated that if the company were still listed, it could be worth twice the $15.8 billion that he paid for it in 2021. Tiffany doubled its revenue in high jewelry in 2022 and will reopen its Fifth Avenue flagship this year.
“As we already make well over $200 million in the temporary store next door, I think that we will at least double annual sales in this [flagship] store, which will be amazing — I’ve seen it. The only thing I don’t know is whether it’ll open in time. You never know. In the U.S., they are less precise than the Japanese when it comes to construction,” Arnault said.
LVMH’s perfumes and cosmetics unit posted a 5 percent increase in sales, down from a 10 percent rise in the previous quarter, while wines and spirits saw revenues rise 4 percent, versus 14 percent in the third quarter. Turnover in the selective retail division was up 12 percent.
In 2022 as a whole, LVMH posted revenues of 79.2 billion euros, up 23 percent year-on-year. Net profit rose 17 percent to 14.1 billion euros, while profit from recurring operations was up 23 percent to 21.1 billion euros.
The group invested nearly 5 billion euros in expanding its store network, building new workshops and hiring staff, recruiting 39,000 people worldwide.
Kering is due to unveil its fourth quarter and full-year results on Feb. 15, and Hermès on Feb. 17.