LVMH eases fears over Hong Kong hit, lifting luxury stocks

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FILE PHOTO: Louis Vuitton handbags are displayed as an employee works in a Vuitton new high-end garment factory in Beaulieu-sur-Layon
FILE PHOTO: Louis Vuitton handbags are displayed as an employee works in a Vuitton new high-end garment factory in Beaulieu-sur-Layon, near Angers, France, September 5, 2019. REUTERS/Stephane Mahe/File Photo

October 10, 2019

PARIS (Reuters) – Shares in LVMH <LVMH.PA> rose on Thursday, lifting other European luxury goods stocks as the Louis Vuitton owner’s stronger-than-expected sales update eased fears of any major fallout from protests in Hong Kong on high-end brands.

Luxury labels rely on Hong Kong as a magnet for travelers and shoppers across Asia. Several months of pro-democracy protests have forced some retailers to close their doors temporarily and lose out on business there.

Helped by booming sales in its fashion and handbag division – home to Vuitton as well as the Christian Dior brand – LVMH shrugged off much of the hit from Hong Kong, with a strong performance in the rest of Asia, Europe and the United States.

Its shares were up 3.9% in early morning trading, while the stock prices of rivals from Gucci owner Kering <PRTP.PA> and Birkin-handbag maker Hermes <HRMS.PA> to Germany’s Hugo Boss <BOSSn.DE> and Britain’s Burberry <BRBY.L> also rallied.

Cartier and IWC parent Richemont <CFR.S> as well as Omega maker Swatch Group <UHR.S> – among the most exposed groups to Hong Kong, a major center for watch exports – profited from the stock market bounce. Sales growth in LVMH’s watch division, home to brands such as Hublot, slowed less sharply than expected.

Some analysts have cautioned that LVMH may be an outlier in the industry, however.

It is riding high on massive investments in marketing and hot new designers for its top brands, and has benefited more than most from thriving demand for luxury wares from Chinese shoppers in recent years.

Gucci, Hermes and Italy’s Moncler <MONC.MI> are also among the stronger performers, but some peers are struggling to attract younger customers or crack markets such as mainland China, and the divide in the sector is growing.

“We think it is more than likely that LVMH materially outperformed its direct peers,” analysts at Morgan Stanley wrote in a note.

Luxury firms also benefited from a stock market relief rally after leather handbags and spirits such as cognac – LVMH produces Hennessy – were left off a list of new U.S. tariffs.

But some have pointed to a tougher economic backdrop in the United States in recent quarters, one of several headwinds with which the industry is grappling.

LVMH is due to hold a conference call at 1500 CET on its third-quarter sales update.

(GRAPHIC: Share performance of luxury retailers – https://fingfx.thomsonreuters.com/gfx/mkt/12/7122/7053/luxury-Hong%20Kong.png)

(Reporting by Sarah White and Sudip Kar-Gupta; Additional reporting by Elaine Hardcastle; Editing by Dale Hudson)

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