LV growth in Q3 close to Q2

Fair Value EUR140 (+9%)       NEUTRAL

News published on October Wednesday 17, 2012
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At the conference call yesterday, management had the opportunity to give more information about: i/ the significant slowdown in Asia in Q3 (+4% est vs +15% in H1) and ii/ Louis Vuitton’s Q3 growth that was close to Q2 (i.e. mid-single digit on our estimates). We do not change our assumptions for 2012 and 2013 and keep our Neutral recommendation.


ANALYSIS

  • During the conference call yesterday, management gave more information by geographical area. In Q3 sales grew 9% organically in the US (according to our calculations) versus +14% in H1. This region was the best performer worldwide. On the other hand, organic growth in Q3 reached 5% in Europe after +8% in H1 and +6%.The most significant slowdown is coming from Asia where organic growth amounted to 11% in 9M versus +15%, implying poor 4% growth in Q4 alone. The poor performance in Japan (+2% in Q3) is due to a more difficult comparison base after a very easy one in H1 due to the Fukushima events in March 2011.
Quarterly organic sales growth by geographical area
Lfl chge (%)        Q1 12     Q2 12     H1 12     Q3 12     9M 12
US                             16          13          14           9           12
Japan                       12           8           10           2            7
Asia Pacific              17           14          15          4           11
Europe                     10            6            8           5            7
Group                       14           10         12           6           10

Source : Company Data; Bryan Garnier & Co. ests.

  • In the Wines & Spirits division, the Q3 slowdown was driven both by Hennessy whose volume grew 6% versus +8% in H1, implying +3% in Q3 and also by Champagne whose volume growth reached 4% on 9M vs. +6% on H1.
  • In the Fashion & Leather division, Q3 sales growth has decelerated, mainly due to Asia while momentum remained well-oriented in US (+14% on 9M vs +18% in H1). Although Louis Vuitton’s sales growth remained stable in Q3 vs. Q2 (close to mid-single digit), the slowdown within the division was mainly due to a poor performance at non LV brands (Céline, Fendi…), a consequence of a wholesale sales decline (LVMH is optimising its wholesale partners like other luxury groups). Nevertheless, LV sales growth to the Chinese and Japanese was in high single digits in Q3 vs. double digit growth in H1. This slowdown has been offset by a better trend with local French and UK clientele. LV sales grew low single digit in China. Louis Vuitton’s positive selling surface is almost +6-7%, implying no LFL growth. Furthermore, LV has increased its selling price by 8% from 1st October, in Europe only, in order to reduce the price gap between Europe and China.
  • In Watches & Jewellery division, most of the slowdown in Q3 (+2% vs +13% in H1) is the consequence of a lower demand in Asia and in the US while Europe performed well. LVMH brands have also been under pressure of destocking, given the high level of inventories at the beginning of the year due to the softness of final demand.
  • In the Selective Retail division, sales growth has been driven by Sephora which enjoyed comps sales growth in all key regions. Sephora has opened 110 stores versus September 2011, including in Q3 its first store in Sao Paulo. DFS has opened its third Galleria in HK.
VALUATION
  • The stock has gained 17% since the beginning of the year (+4.5% vs the Stoxx 600) and 1% on last month. On 2013 EV/EBIT, it is trading with 13% premium vs peers. EUR140 FV maintained.
NEXT CATALYSTS
  • FY 2012 profits to be released mid-February

Analyst : Loïc Morvan / 33(0) 1 70 36 57 24 / lmorvan@bryangarnier.com
Consumer Analyst Team : Cédric Rossi, Peter Farren, Nikolaas Faes

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