17 April 2024
If you are covering LVHM, Adidas or the general consumer goods market, please find below a comment from Mamta Valechha, consumer discretionary analyst at Quilter Cheviot:
LVMH
“LVMH kicked off the Q1 reporting season for the luxury goods companies yesterday evening, pretty much setting the tone and expectations for the rest of its peers. Results were broadly in line with group organic revenue up 3%, and the most important Fashion & Leather Goods division, saw organic revenue growth of 2%.
“However, given the fears going into this results season was of negative growth, a positive growth and no obvious indication of weakening trends, is seen as good enough for LVMH. By nationality, spending trends for Americans, Japanese and Europeans remain the same, that is slightly negative, while spend by Chinese consumers was up 10%. Now beyond the normalisation we are seeing in the luxury world, the group was comparing some tough results, as this time last year the group was benefitting from the end of zero covid policy in China.
“Just in terms of trends, in the US, there continues to be a divergence between aspirational and high-end consumers, and the former continue to feel the pressure of inflation and price increases. Asia came in weaker than expected (-6%), however, this was due a major shift in Chinese tourism to Japan, as they took advantage of the weak yen.
“This result season, we expect to see a divergence in trends - we think turnaround stories such as Burberry and Kering, will find it tough, and we would stick to quality names, such as those whose brands are seeing good momentum despite the slowdown, and those who are leaders in their respective categories and have leverage to protect margins, such as LVMH.”
Adidas
“In true adidas style, the group once again pre-released its headline number yesterday evening after market close and in short it is good news. Q1 revenue growth was guided to be flat, and was expected to be the weakest quarter of the year. However organic sales growth has come in at 8%, well above the 3.5% that was expected.
“The majority of the beat has been driven by the underlying business, with a small contribution from Yeezy, which is encouraging and confirms the rapidly accelerating momentum of the brand. However, the Yeezy franchise did in fact make a small profit despite management previously saying it would be sold at cost.
A strong than expected Q1 means that its full year guidance was raised with revenues are now expected to grow in the mid to high single digit range, whereas previously this was expected to be mid-single digit.
“While 2023 was a reset year for adidas, 2024 is where we will start seeing the momentum in revenue and earnings picking up. We continue to see many catalysts this year – we expect momentum of the Terrace shoes to drive momentum in other franchises, meanwhile with a packed summer sporting calendar, the group is investing in performance shoes (running and basketball), and as inventories are cleaner, we suspect retailers would want more of adidas on their shelves, as evidently the brand is picking up.”
