The French powerhouse, home to Dior, Louis Vuitton, Sephora, and Tiffany & Co., stunned with a 10% sales surge in the final quarter of 2023, surpassing analyst forecasts.

Despite global uncertainties, the ultrawealthy are still splurging on high-end items, even in China, where luxury demand was in doubt, owing to a sluggish economy.

Now LVMH’s stellar performance is injecting fresh confidence into the luxury market.

“Our performance in 2023 illustrates the exceptional appeal of our Maisons and their ability to spark desire, despite a year affected by economic and geopolitical challenges,” LVMH’s billionaire CEO, Bernard Arnault, said in a statement, adding that the company was stepping into 2024 with confidence.

The optimistic tone sent LVMH’s shares up by the most in nearly two years, while other luxury company shares also rose following the earnings, including Gucci owner Kering. 

Luxury industry banking on LVMH

LVMH’s performance is closely watched in the luxury sector, boasting a diverse portfolio from fashion and beauty to spirits and hotels.

The crucial fashion and leather goods segment saw a robust 9% sales uptick last quarter, while watches, jewelry, beauty, and fragrance brands also thrived. Sephora, in particular, delivered “exceptional performance” throughout 2023, according to LVMH’s earnings.

Just a few months ago, the Paris-based giant raised eyebrows with slower revenue growth in the third quarter, signaling potential shifts in the industry. This came after luxury enjoyed a significant boost from consumers’ pandemic-linked savings.

“The stock doubled between March 2020 and March 2021 and trebled to its high in April 2023, establishing the company as the real pandemic winner with very significant market share gains and raising profitability by over a third,” said Flavio Cereda, co-manager of asset management firm GAM’s luxury brands investment strategy, in a note to Fortune. 

While LVMH’s fourth-quarter and 2024 outlook instills hope that it may not be gloomy for luxury this year, it also points to some pain points the industry still has to navigate. 

Chinese spenders yet to fully recover

Shopping activity for Chinese shoppers in Europe at Louis Vuitton was at 70% of pre-pandemic levels, LVMH CFO Jean-Jacques Guiony said in a call with reporters, pointing to resilient luxury demand from Asian countries. 

However, it may still be a while before Chinese spenders fully recover, given the continuing impact of travel disruptions in the country, Jelena Sokolova, senior equity analyst of consumer discretionary and luxury goods at Morningstar, told Fortune.

“Chinese solo tourists are starting to show up in Europe, but they don’t see the groups yet, and the groups are really the bulk of travelers,” she said, adding that backlogs in visas and uncertainty in the country’s real estate market where Chinese nationals have tied up a bulk of their savings, are also factors to consider.

“They [Chinese shoppers] do also have savings from the pandemic like people in the West had, but given the economic uncertainties … they’re a bit more reluctant to spend.”   

There’s also a growing chasm between the likes of LVMH and Richemont, and their rivals offering luxury goods in a lower price range—such as Burberry—which cater to so-called aspirational consumers.

In a call with analysts, Arnault pointed to how “the highest-end products are those that have the highest demand in the world.” 

Sokolova said that exposure to affluent consumers, who are more economically resilient, has been key to driving sales at brands like Cartier and Van Cleef & Arpels, owned by Richemont, or the Birkin-bag maker Hermès.

Meanwhile, other entry-level brands might experience a rockier path to recovery.