LVMH kicked off 3Q22 reporting season for the luxury sector with an excellent set of figures across all business segments (but led by its most important division Fashion & Leather Goods segment, which posted revenue growth of +22% year-over-year). Total company revenue was up +19% compared to the year-ago quarter. Moreover, management gave all indications that it expects 4Q22 results to be similarly robust and that there have been no indications of any slowdown: "LVMH is confident in the continuation of current growth and will maintain the objective of further strengthening its global leadership while staying vigilant in context of macro and geopolitical uncertainties."
- The U.S. region’s growth slowed to +11% versus +24% in the 1H22 due to the Fashion & Leather segment, as LVMH’s U.S. luxury consumer was traveling overseas and spending on experiences more so than earlier in the year. Moreover, in 2021, that consumer was sequestered at home which created an unusually higher base period. We would expect all other prestige luxury brands to show a similar effect.
- LVMH also called out "a strong rebound in its in-store activity" for Sephora in North America, as well as in France and the Middle East. CFO Jean-Jacques Guiony shared that the segment’s growth was, "very comparable with the preceding quarters so we are still very happy with the performance of Sephora in the U.S." As to the risk of cannibalization with the large Sephora at Kohl’s expansion, Guiony stated, "One, Kohl's locations are different from Sephora's existing locations, so it's not so much of a problem; and two, the client base at Kohl's is different than the one that would normally go to Sephora. It was really the 2 businesses adding on to each other rather than risking of cannibalization. And so far, we've been extremely pleased with the business we do with Kohl's … is massively incremental to the existing business of Sephora."
- As to Tiffany in the U.S. and its aspirational customer, Guiony shared, "the state of the business is under some pressure. The reason in my view is mostly that in a sort of inflationary environment, gold is doing much better than silver...Obviously, we are not satisfying ourselves with the situation, and we are working on it very, very seriously." Tiffany's revenue is still up double-digits YoY, but that’s largely price as traffic and transactions are down YoY. We covered this topic several months ago and would expect to learn about softer results at Coach, Michael Kors, and other aspirational luxury brands in the weeks ahead.
- Our recent discussions with U.S. tourists traveling to Europe indicate that many were on a trip that had been canceled once, or twice, due to the pandemic and that were now making up for borrowed time (See American Express’ trends in the figure below.) For 3Q22, American Express reported that "spending on T&E increasing 57 percent from a year earlier and T&E spending volumes in our international markets surpassing pre-pandemic levels for the first time this quarter."
- Moreover, U.S. tourists "borrowed time" had been shortened, as their airline miles program had shortened the cut-off date for when miles needed to be used before they expired. As such, many affluent tourists were taking multiple holidays this year and early next year to burn through their miles. Consequently, the current period of "revenge travel" is a bolus effect or a Champagne moment. We've also seen evidence of "every weekend is a holiday weekend" as described by United Airlines CEO Scott Kirby, given that many can work from home on Monday, and beyond, allowing for easier and more frequent "weekend" visits even to Europe. This week, Kirby shared that we are in the "new normal," as well as stating that 4Q22 bookings look very robust. We always grow cautious about statements of "new normals", as they are generally wrong. Kirby's view is also shared by Airbnb’s CEO Brian Chesky and it's a "use case" that several hospitality groups are investing behind. Should this use case prove durable and "normal," it will undoubtedly shift consumer expenditure from goods to services. From a CRE perspective, we will be keeping the theme "live" in the Anchor with ongoing insights and intelligence.