The bears have been circling the luxury-goods sector this year. LVMH Moët Hennessy Louis Vuitton’s 2010 results suggest they might go hungry. The Paris-listed group, which makes Louis Vuitton handbags and Dom Perignon champagne, reported Friday record full-year revenue of €20 billion ($27.27 billion) and pretax profit up 30%, excluding gains related to its acquisition of Hermès International shares. Including the Hermès gains, earnings per share rose 70%.
Yet LVMH’s shares dropped, taking year-to-date losses to more than 7%. LVMH now trades at a slight discount to the sector at 18.6 times forecast 2011 earnings. That looks unwarranted.
My favorite Louis Vuitton commercial featuring Gong Li from 2008:
Sure, a decline in operating margins in wine and spirits in the second half of the year was disappointing. Put that down to cost inflation that LVMH was unable to offset with price increases, slower volume growth as restocking eased, and higher advertising and promotion spending. But in fashion and leather goods, Louis Vuitton pushed up prices by 8% in October in the euro zone, ending a period of almost no increases, yet sales rose 20% and operating margins added 2.2 percentage points to 33.7%