Richemont gave the luxury sector some unexpected good news earlier this month, reporting a surprisingly strong 10 percent increase in fourth-quarter sales, including robust business in the US and Europe and a less-dire outlook for China. On Friday, Burberry also reported better-than-anticipated results, including a big uptick in its US business.
LVMH’s fourth-quarter earnings, due out on Wednesday, will either confirm that luxury’s rebound is underway, or expose Richemont and Burberry as the exceptions that prove the rule. Investors are betting on the former: LVMH’s stock has risen 14 percent since Richemont put out its results, to a roughly six-month high.
There’s solid grounds for optimism. The drivers behind Richemont and Burberry’s results were similar – a less-severe downturn in China and decent demand elsewhere. A recovery at Burberry in particular bodes well, as the brand was among the hardest-hit when consumers worldwide began to pare back luxury spending last year.
A more cautious view would consider that Burberry achieved its sales bump in part by slashing prices over the holidays. Even in reporting strong earnings, Burberry executives were careful not to call an end to the luxury sector’s troubles. And key drivers behind Richemont’s and Burberry’s success – jewellery and outerwear, respectively – are not strengths of LVMH’s biggest brands, which rely heavily on handbags to drive sales and profits. That category has been one of the worst-affected by the luxury downturn, and it will be tougher to once again convince consumers these items are worth the high price tag. It remains to be seen whether the backlash against higher prices (Dior in particular has been aggressive about hiking the cost of its bags), and a general lack of excitement around major brands, has given way to more positive consumer sentiment.
Even if LVMH’s results underwhelm, there are plenty of opportunities ahead to change the narrative. Lunar New Year begins on Jan. 29, and China has added an extra public holiday in an effort to boost consumer spending. In Paris, couture shows start on Jan. 27, with a packed schedule of awards shows and other red carpet events providing plenty of opportunities for brands to generate badly needed heat (though that may be harder than usual, with Chanel skipping couture week and celebrities potentially toning down their event looks due to the wildfires). Louis Vuitton has a busy schedule of activations for the 20th anniversary of its highly bankable Murakami collaboration. And of course, there is the next phase of designer reshuffles, which, if the rumour mill is to be believed, could include Jonathan Anderson moving into the top creative job at Dior.
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