LVMH shares bounce as fashion and leather sales improve

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By Astrid Wendlandt

PARIS, Jan 31 (Reuters) - LVMH (TLO: LVMH.TI - news) shares jumped on Friday after the world's biggest luxury group said fashion and leather revenue accelerated in late 2013 and predicted cognac sales in China would improve in the current quarter.

Bouncing from a seven-month low set the previous session, LVMH shares rose as much as 7 percent, dragging up rivals such as Richemont, Burberry and Kering (Milan: KER.MI - news) which gained between 2 and 4 percent.

"Market fears of a weakening quarter-on-quarter (at LVMH) were alleviated and the diversity of the group's portfolio continues to protect against macro (economic) headwinds," Nomura analysts said in a note.

Sales growth at LVMH's fashion and leather good unit, its biggest business, accelerated to 7 percent in the quarter to Dec. 31 from 3 percent in the previous three months, beating analysts' expectations of between 4 and 5 percent.

The owner of Hennessy cognac and fashion brand Dior said late on Thursday that the profitability of Louis Vuitton, LVMH's main cash cow, remained unchanged in 2013 and that its upmarket repositioning progressed.

When LVMH published its mid-year figures in July, there was concern about Louis Vuitton losing momentum after having enjoyed stellar growth for years.

LVMH also said it expected cognac sales to end-customers or consumers in China to be "positive" in the first quarter, after having joined the ranks of rivals Diageo (LSE: DGE.L - news) , Pernod Ricard (Frankfurt: PER.F - news) and Remy Cointreau (Frankfurt: RMC.F - news) , which suffered from excessive stock and lower demand for premium spirits in China.

COMPETITIVE STRATEGY

LVMH shares, which lost 4.5 percent last year and had fallen 7.6 percent so far this month, were trading 5.8 percent higher at 129.60 euros by 0835 GMT, the top gainer in a 0.1 percent weaker French CAC 40 blue-chip index.

LVMH is trading on about 16 times this year's earnings, which puts it roughly in line with the sector average but at a discount to smaller, more versatile groups such as Prada (HKSE: 1913-OL.HK - news) and Ferragamo (Frankfurt: S9L.F - news) , which trade on 18.5 and 23.5 times respectively.

"We view LVMH's competitive position as very solid," Morningstar (NasdaqGS: MORN - news) analysts said in a note. "We believe the market is understating the long-term potential for LVMH's large and diverse group of luxury brands."

Richemont said earlier this month that the pace of sales growth remained steady in the last three months of 2013, rising 9 percent at constant exchange rates as demand for its IWC watches, Cartier jewellery and other brands in its retail outlets more than offset a still subdued wholesale business.

Demand for coats and large leather bags helped Burberry top Christmas sales forecasts, meanwhile, the British luxury brand said earlier this month.

Gucci owner Kering (Other OTC: PPRUF - news) is due to publish 2013 results on Feb. 21. (Editing by James Regan and David Holmes)